Saturday, January 6, 2018

Brian Romanchuk — MMT Is Not Just "Theory X"

Explaining MMT.

Bond Economics
MMT Is Not Just "Theory X"
Brian Romanchuk


Brian Romanchuk said...

Your title is perhaps too “Brian Romanchuk” oriented... 😄

Tom Hickey said...

Ha Ha.

Just fixed it.

Matt Franko said...

"For some mysterious reason, the electrical engineering department at McGill thought it was a good idea to require every honours electrical undergraduate to take a course in quantum physics taught by the Physics Department."

Yup same here... big mistake... BIG BIG mistake...

Matt Franko said...

This would be like taking a kid in the Business School studying Finance & Accounting science, and make them go over to the Econ dept and take a course in DGSE models...

Academic malpractice...

John said...

Who else would teach QM other than a physics department? An engineering department? Has such a thing ever happened? It's highly doubtful an engineer would understand the subtleties of the theory. And if you're expected to learn relativistic QM, and with all respect to engineers, I can't imagine an engineer figuring out how to teach this stuff. This is relatively (no pun intended) hard stuff. You're off to a bad start with SR if you start thinking of it as modified Newtonian mechanics. This will just confuse you.
You simply have to unlearn all the very natural ways you look at the world and start from scratch.

As for QM, there are very bad ways to teach the subject and very few good ways, but, to be honest, I can't see how anyone buy a physicist would or could be able to teach the subject. I've never seen a good book on SR or QM written by an engineer. There are very good reasons for that. And I would hazard a guess that if a physicist were to come in and question a class which has learned SR, QM, let alone relativistic QM, she or he would conclude the class didn't understand the subject. I suppose one might be able to come up with a rough and ready way of making calculations for the engineers who have to build huge accelerators and whatever else requires knowledge of relativistic QM. For instance, he courses and textbooks for experimental particle theorists are very different to those the theorists have to slog their guts through. That's just my opinion. Although I must say that I highly regard engineering mathematics textbooks. They treat the subject as if it matters and means something. Look at how a mathematician treats the same subject: theories, lemmas, proofs, etc. Engineers are top notch when it comes to applied mathematics books, but there is a reason there has never been a good engineering QM, engineering SR, or engineering relativistic QM book. I'm willing to be disabused, so if anyone can recommend a book...

Matt Franko said...

It’s stochastic sophistry... it has no use... like DSGE...

The only people it matters to are other theoretical physicists... complete perversion of Newton...

Matt Franko said...

Like Brian’s point the Engineering depts send their kids over to the other depts to be taught those things... same with social sciences I had to earn 12 credits in social sciences so I took 6 in Econ I took intro to macro for 3 and intro to micro for 3 to earn my 6...

But the dog that doesn’t bark is how those disciplines never send their people over into the Engineering Dept for anything... revealing...

John said...

Matt: "The only people it matters to are other theoretical physicists..."

Theoretical physics only matters to other theoretical physicists? Absolutely untrue. The exact opposite is almost always the case. Other than string theory, which has had very useful applications in mathematics, every other branch of theoretical physics is useful to other sciences. Without quantum mechanics you wouldn't have mobile phones, computers etc. Without special relativity you wouldn't have, at the very least, GPS.

Matt: "...complete perversion of Newton..."

Oh, really? As if physicists have nothing better to do with their time than pervert Newton. And in any case, what pray is the right way to think about Newton? What, you think Newton's theory is superior to Einstein's? A theory that is utterly useless at very high speeds is better than one that is useful? The one that has been experimentally found wanting is more useful than the one that has been experimentally found to be accurate to as many decimal places as the equipment measuring the phenomena is accurate?

Your understanding of Newton's and Einstein's theories are about as accurate as your fanciful distortions of Darwin.

Matt: "But the dog that doesn’t bark is how those disciplines never send their people over into the Engineering Dept for anything... revealing..."

What would be the point of sending a string theorist to an engineering department? Or an algebraic topologist? Or an entomologist? Or ad infinitum. Engineering departments are exceptionally useful, but the idea that you're some sort of moron if you've never had to sit through a certain amount of engineering classes, is weird. As if an entomologist will ever need a course in software engineering. Or an algebraic topologist will need a course in avionics. Does it even matter what course they attend as long as they sit through something?

Matt Franko said...

It just part of Mechanics...

And you dont sit thru anything its an active methodology... you do 'exercises' ... you get repetitions... its not a rote or read/write method...

I can TELL you how to win a marathon just by saying "run 24 miles in a few minutes over 2 hours..." but then just go and try to do it... youre not going to come close...

Wanna be on the PGA tour? just "go out and shoot 4 under par every time..." but if you are not hitting 300 balls a day you will never come near that ....

You have to train... they dont train...

Matt Franko said...

Look at the recent Seattle train wreck: no training on the route and the conductor was going 85 into a 35 turn... several dead... no training...

This is the econ department.. no training... train wreck...

"Stability creates instability!", etc...

"the train crashed because before that it was going along just fine!"...

all unqualified... never trained correctly...

John said...

Matt: "You have to train... they dont train..."

How then have they been able to work out all the stuff they have and then make it, you know, in the real world? There is no rote learning. It's active work. Your idea of scientists as being boffins who can't tie their laces but can work out how to make an atomic bomb, and presumably only in theory because smart engineers come along and do all the work, is amazing.

Every important invention was the work of theoretical physicists, theoretical chemists and theoretical biologists and their applied cousins. Even the modern computer was the brainchild of theoretical physicists and mathematicians like Turin and von Neumann. Let's not overplay the brilliance of engineers. They're smart and they're useful, yes, but so are the theoretical scientists that you disparage as nothing but rote learners. All the major breakthroughs have been by scientists, not engineers. Sorry but that's just a fact of know, like evolution.

We all know of physics envy. I don't subscribe to it, but there's an understandable reason for its existence: extremely hard intellectual effort and thinking in conceptually new and difficult ways is demanded. Instead we should have been worshipping at the shrine of engineering all along!

John said...

Matt: "all unqualified... never trained correctly..."

That's neoliberalism for you.

And anyway what case are you trying to make exactly? That accidents would never happen if an engineer was in charge? Accidents happen. There can be any number of reasons, including negligence. What more needs to be said? There are thousands of engineering disasters. Disasters the handiwork of extremely competent engineers. What knowledge should we gleam from this? That we live and learn. Again, what more needs to be said?

Matt Franko said...

There arent 'thousands' of engineering disasters....

Matt Franko said...

"That's neoliberalism for you. "

I could just as well say "that's diversity hiring for you..."

So obviously it is not your "neo-liberal conspiracy!"...

Its always about technical competence when you are talking about material systems... and competence comes from TRAINING...

They are not technically competent..

Part of technical competency is being able to appreciate being correct and rejecting incorrectness...

They never get training in this because their program is WEAK... it is more read/write than active in methods... they write papers they dont do exercises...

They dont actively train rigorously...

So you have QE where they are all saying "were going to have hyperinflation!" becasue that is what they READ .... then prices not only dont go up they collapse... we look at them and they say "so what?" and shrug their shoulders..

Now today, they are all saying "were going to have trillion dollar deficits!" now watch what happens if the deficit falls... we are going to get another "so what?" and they will all shrug their shoulders...


Matt Franko said...

Biggest engineering project in the USA right now is the Oroville Dam repair...

what if that Dam had failed last year? i'm sure you would call that an 'engineering disaster!'

Meanwhile, trained jurist Gov. Jerry Brown stole the maintenance $$$ for maintaining the concrete joints in the spllway to pay for healthcare for a few million illegal turd worlders????

So a lawyer steals the munnie for political purposes and then that is supposedly an "engineering disaster!"...

Same thing with Chris Christie's bridgegate female diversity hire fing up the GW bridge operations and now she is going to jail...

Nobody trained in material systems being put in charge of material systems ALL THE TIME...

John said...

Matt: "There arent 'thousands' of engineering disasters...."

Of course there are. Add up every country in the world over even a mere hundred years or so, and you think there aren't thousands of disasters?

How many times have planes fallen out of the sky? How many times have mobile phones blown up or melted? How many times have cars had to be recalled because they're deathtraps? How many bridges have fallen apart? How many dams have cracked? How many nuclear plants have malfunctioned? How many space shuttles, rockets and satellites have blown up or gone astray? The US Navy's ships has a peculiarly high rate of crashing into other very big ships and whatnot, even with radar. The list is endless. The reason is simple: engineers are human. They just don't know enough, or didn't know enough when they designed whatever it is that then malfunctioned. They know more with time, although that will never account for stupidity and incompetence. Engineers are nothing special, just highly sentient offshoots of the great apes like the rest of us. Now, poststructural literary theorists and Republican politicians are another matter entirely - they know everything!

Matt Franko said...

"How many times have planes fallen out of the sky?"

None last year in case you havent heard:


Matt Franko said...

"The US Navy's ships has a peculiarly high rate of crashing into other very big ships and whatnot, even with radar. "

Nothing out on that... at least I havent seen anything detailed... I'm still waiting...

I GUARANTEE that normal training was not available for some (non technical) reason... probably diversity... we'll see...

John said...

Matt, this bugbear you have about material systems and training and all the rest of it makes no sense whatever. What is it you want? The world to be run by engineers? What the hell for? You think engineers can figure everything out? They can't. And anyone who believes they can doesn't understand the first thing about the systems they claim to be experts in: the unexpected does happen because of a lack of knowledge and/or understanding of the system under investigation. You seem to think that everything is entirely predictable. As far back as the seventeenth century that was understood to be unattainable, notwithstanding Laplace's demon. Even entirely predictable systems give rise to unpredictability. That's a law of the universe.

John said...

Matt: "I GUARANTEE that normal training was not available for some (non technical) reason... probably diversity... we'll see..."

By your singularly elevated standard that nobody else accepts. What about the standard that is considered acceptable by professional bodies? Or are they incompetent too? And what do you mean by "diversity"?

Matt Franko said...

"How many space shuttles"

1. System operated outside of designed temperature range...

"Utah engineers' warning was ignored before Challenger explosion 30 years ago
Morton Thiokol's experts said cold temperatures in January 1986 could trigger a "catastrophe of the highest order," but they were overruled by NASA."

Not an "engineering disaster" just a "disaster"...

Matt Franko said...

"You seem to think that everything is entirely predictable"

It mostly is... a lot is... if you are properly trained..

Even the weather people are nailing it...

AXEC / E.K-H said...


MMT is refuted on all counts. See cross-references

and ‘The new macroeconomic paradigm’

Egmont Kakarot-Handtke

#MMT #MMT2018 #DebunkMMT #NotDifficult #FailedScience #FakeScience #BogusScience #ScientificIncompetence #PoliticalEconomics #ProfitTheory #SectoralBalances #PrivateSectorSurplus #Debt #Money #ParadigmShift #MacroFoundations #Science

Matt Franko said...

They may have fast tracked people there (without adequate training/certification) due to diversity quotas...

I have not seen reports of the identities of the OOD during any of the two collisions...

Matt Franko said...

“your singularly elevated standard”

No the USN has standards and qualifications to drive a ship not me....

Let’s see if they were bypassed...

Matt Franko said...

“What is it you want? The world to be run by engineers? ”

Call them what you want ... we should have THE MATERIAL SYSTEMS run by the MATERIAL trained people...

What are you saying let’s put the Political Science majors in charge of material systems? The Philosophers?

That’s how you end up with “govt as household” people fing it all up...

Matt Franko said...

We need STEM people in the material jobs...

Look at this whole Russiagate fiasco at the FBI/DOJ that is getting sorted out... criminal referrals now being made... are you saying we should have STEM people running that and not lawyers?

You want the lawyers to stay out of that and instead run NASA?

Matt Franko said...

Here John, Dan (trained philosopher) is asking the correct questions:

Once you get them answered in legal form, turn implementation over solely to qualified and competent trained material systems (STEM) people...

John said...

Matt: "Even the weather people are nailing it..."

The exact opposite is the case. Weather was the first example in which chaos (sensitivity to initial conditions) was identified. The meteorologist Edward Lorenz couldn't figure out why something that should be "predictable" gave rise to unpredictability. The weather is predictable for no more than a few days. No matter how many supercomputers you have, there is an inherent sensitivity (measurement accuracy) which can very quickly overwhelm the predictability of the system.

Dan's point is that the world economy is now a "morally atrocious, soul-crushing and planet-destroying clusterfuck", nothing to do with getting these material systems demigods to run everything. Macroeconomics is now an absurd discipline. I don't think engineers would do any better if they come to the subject with similarly stupid assumptions, which they probably would because they may well think in exactly the same way as the neoclassicals.

How many engineers worship at the shrine of marginal utility, the money multiplier and all the other gibberish? Can engineers do any worse than mainstream macroeconomists. Probably not, but neither would literary theorists. I know loads of applied mathematicians, physicists, astrophysicists, computer scientists and engineers who went into finance. They're all crackpots now. They've all swallowed the kool-aid. I wouldn't trust them to organise an empty drawer let alone the economy. I'd certainly trust them to engineer the next financial implosion. What we need are MMTers and real world post-keynesians running the economy, not a bunch of corrosion engineers. Engineers are good at, you know, engineering, like geologists are good at, you know, geology.

AXEC / E.K-H said...

Comment on Keith Newman/Bond Economics

You say “Hello Brian, I completely agree with your observation that ‘it is not going to be easy for a MMTer to offer a short summary of what MMT is. Someone may be able to come up with a succinct theoretical summary, but that summary would be meaningless for anyone not already familiar with MMT in the first place.’”

In fact, it is quite straightforward: MMT is money-making for the one-percenters because Public Deficit = Private Profit and fake science because MMT’s foundational balance equation (I−S)+(G−T)+(X−M)=0 is false.

For details see Down with idiocy!

You say “Bill Mitchell has an interesting post on the subject that includes the sectoral balance approach. A quote: ‘How does Kalecki see budget deficits in this model? The way in which the budget deficit generates profits is via its effect on national income.’”

Kalecki messed profit theory up just like all the rest.
See Heterodoxy, too, is scientific junk

You say “A very interesting publication on the subject is available from the Jerome Levy forecasting Center entitled Where Profits Come From.”

I have summarized this paper as follows “The lethal error/mistake/blunder of the Levy approach consists in starting with Saving = Investment.” This is the original Keynes-blunder.

See Rethinking deficit spending

Brian Romanchuk’s remark “I think it’s Doktor E.K-H. I tried deciphering his arguments a year ago, and I think his arguments came down to his using some primitive cash-based notion of profit.” tells you that he does not even understand what the matter is all about.

So here in brief: The MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false and the E.K-H balances equation (I−S)+(G−T)+(X−M)=(Qm−Yd) is true. Legend: Qm is monetary profit, Yd is distributed profit. Qn, i.e. non-monetary profit, has been left out here to simplify matters but has been treated extensively in the Levy Economics Institute of Bard College Working Paper No. 741

See also The Common Error of Common Sense: An Essential Rectification of the Accounting Approach Levy Economics Institute of Bard College Working Paper No. 371

So, the description of MMT boils ultimately down to: MMT is proto-scientific garbage which is promoted by folks with less than two brain-cells who cannot even tell what profit is.

Egmont Kakarot-Handtke

Brian Romanchuk said...

I saw John’s comments late. I’d hate to point this out, but semiconductor devices work because of quantum physics. Electrical engineers design systems on semiconductors. Therefore, there is a body of expertise in quantum physics wihin electrical engineering departments. However, since most semiconductors are not travelling at a major fraction of the speed of light, learning Special Relativity is not exactly a high priority for EE students.

Sure, having a physics prof using a standard quantum text can be justified on “knowledge for the sake of knowledge” grounds, which is presumably why it was done that way. I only gave the back story to explain why I actually have (or more accurately, had) knowledge of Special Relativity.

Tom Hickey said...

Quantum nonlocality is important in the development of new global quantum information networks, which will have transmission security guaranteed by the laws of physics. These are the networks where powerful quantum computers can be linked.
Photons can be used to form a quantum link between two locations by making a pair of photons that are "entangled" - so that measuring one determines the properties of its twin - and then sending one along a communication channel....

Electronic communications to be replaced eventually by quantum communications?

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

The formal basis of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, 1973, 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., 2010, pp. 12-13)

So, Keynes, the fake scientist, had NO idea of the foundational concept of economics. After-Keynesians in their bottomless incompetence never spotted Keynes’ blunder with one honorable exception: Allais.#1, #2

Post Keynesians and MMTers blindly reproduced Keynes’ blunder until this very day.#3

So it is NOT the case that I “defined profit differently” but it is indeed the case that I defined the macroeconomic Profit Law for the first time axiomatically correct.

From this follows for the balances equations
(I−S)+(G−T)+(X−M)=0 = MMT = false
(I−S)+(G−T)+(X−M)=(Qm−Yd) = AXEC = true.#4

Now it is your turn. The Walrasians have put their axioms on the table, so have I.#4 Stop blathering, show your axioms and your definition of macroeconomic profit or get out of the scientific discussion.

Egmont Kakarot-Handtke

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

#2 “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)

#3 Why Post Keynesianism Is Not Yet a Science

#4 The new macroeconomic paradigm

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

You said “It would be very easy to be annoyed at these characterisations of MMT; they almost invariably trivialise the theory, saying it is ‘just’ some simple theory (the word ‘just’ is always in the phrasing). … The first thing to keep in mind is that MMT is not a single idea, it is what appears to be an internally consistent economic school of thought, which lies in the ‘broad tent post-Keynesian’ economics, following the definition of Marc Lavoie in his text Post-Keynesian Economics: New Foundations.”

Why do you not simply put down in a clear language the handful of core propositions MMT is built upon instead of constantly being annoyed by the wrong characterizations and misunderstandings of non-MMTers? After all, this is how science works since 2000+ years: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle)

If your premises/core assumptions/primitive propositions/axioms are not well defined the whole of your argument falls apart. It is pretty obvious that you are too confused to define MMT properly. Instead, you waffle about quantum physics or the use of the word axiom.

You maintain “I believe that ‘axiom’ is essentially ‘assumption’ in Greek, but in the English-speaking mathematics world, ‘axiom’ is reserved for foundational mathematical assumptions, like those for plane geometry or the real line.”

Obviously, you have never heard that one of the most famous books in physics ― Newton’s Principia ― starts with the words Axiomata Sieve Leges Motus or that Debreu titled one of the most important Neoclassical books The theory of value: an axiomatic analysis of economic equilibrium.

Keynes understood the crucial role of axioms very well “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.”#2

The same holds for MMT. Because of a lack of clearness in the premises/axioms, MMT is simply a heap of inconsistent and confused blather that MMTers themselves do not understand. Every approach stands or falls with the consistency of its axioms.

You say “In any event, you can pick up practically any introductory macro textbook and get the *definitions* used in the national accounts.” Yes, but the fact of the matter is, that these *definitions* are false since Samuelson’s textbook of 1947.#3

I understand that you have a lot of problems on your plate which explains that there has not been one second left since your textbook years for thinking about profit and income which are without any doubt the foundational concepts of economics. Fact is that you are too stupid for the elementary mathematics that underlies accounting.#4

Egmont Kakarot-Handtke

#1 Keynes, Euclid, and economic methodology

#2 Keynes, the methodologist

#3 The father of modern economics and his imbecile kids
In the 1998 edition the blunder is on p. 392.

#4 A tale of three accountants

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

You say “Newton was writing in Latin, not English. As I wrote, this is the convention in the English-speaking world.”

WOW, did you never realize that the Principia was translated into English in 1729 and Book I starts since then with ‘Axioms, or the Laws of motion’?

Where did you get your diploma from? Trump University?

As far as axiomatization in mathematics is concerned you better look up Hilbert, Bourbaki, Russel, Whitehead in Wikipedia before posting brain-dead nonsense.

In economics, axiomatization started with Senior: “To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis.” (Schumpeter)#1

Modern microeconomic textbooks start with the Axiom of Rationality, see Mas-Colell Microeconomic Theory, page 5.

Obviously, you have no idea of the scientific “conventions in the English-speaking world.”

But our issue is not methodology in general but the conceptual mess of MMT. And here the proof has been given that the balances equation MMT is based upon is false.#2

MMT is scientifically dead, admit it and then get out of the way.

Egmont Kakarot-Handtke

#1 From obscurity to enlightenment

#2 Rectification of MMT macro accounting

John said...

Brian: "Therefore, there is a body of expertise in quantum physics wihin electrical engineering departments."

I don't doubt there may be a level of expertise, but the question is how much expertise, and how much of it is functional rather than complete? The analogy I would make is the way engineering departments, or indeed physics departments, teach the mathematics required as opposed to the mathematics taught in a mathematics department. The level of expertise is functional rather than complete. Non-mathematicians don't need scores of pages of lemmas and proofs; they need what is necessary for the area they're investigating. That is not a criticism but rather a simple observation. Any first course in GR any physicist takes has a an extremely minimal functional grounding in differential geometry. It is completely different to that taught in a mathematics department.

A calculus course taught in an engineering department is utterly different to one taught in a mathematics department. I've taken mathematics courses in mathematics departments, and the courses may as well have been taught in ancient Greek. I literally couldn't follow a word of it. Similarly I've known very competent mathematicians having tremendous problems understanding a word of, say, a QM course taught by physicists because the way the subject is approached. A mathematician doesn't know the first thing about simple physical phenomena like blackbody radiation and the photoelectric effect.

A physicist couldn't design many of the things an electrical engineer finds a doddle, but an electrical engineer doesn't have the same understanding of EM waves that a physicist has. It's a question of specialism and the amount of knowledge that is necessary for that subject and profession. It's not a criticism; it's a fact of life. Otherwise different subjects, specialisms and professions wouldn't exist.

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

You say ”I’m trained as a mathematician, not a ‘scientist,’ and your writing style is mangling *modern* mathematical conventions.”

Frankly, it is a matter of indifference what your training was. Perhaps Wikipedia can bring you up to speed with regard to axiomatization: “The Zermelo-Fraenkel axioms, the result of the axiomatic method applied to set theory, allowed the ‘proper’formulation of set-theory problems and helped to avoid the paradoxes of naïve set theory. One such problem was the Continuum hypothesis. Zermelo–Fraenkel set theory with the historically controversial axiom of choice included is commonly abbreviated ZFC, where C stands for choice. … Today ZFC is the standard form of axiomatic set theory and as such is the most common foundation of mathematics.”

You say “I cannot see how a ‘definition’ (of profits) turns into an ‘axiom.’” Nobody can see a definition turning into an axiom because this is a hallucination of your own making.

The three macroeconomic axioms for the elementary production-consumption economy are given by (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. And the profit definition reads Qm≡C−Yw.

You say “But for our purposes, MMT uses standard national accounting, which is a formal framework developed earlier, and is still under revision. National accounting provides an internally-consistent set of definitions for defining aggregates.”

Again, the formal framework of standard national accounting is inconsistent. For the proof see The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

Because of this, the MMT balances equation (I−S)+(G−T)+(X−M)=0 is false. A mathematician worth his salt sees this immediately. Profit is the balance of the business sector and it is MISSING in the equation.

Your reference to the SFC modeling literature is pointless because if the foundational concepts profit and income are ill-defined the models are only good for the wastebasket. This applies to all MMT models.

MMT policy guidance lacks sound scientific foundations.

Egmont Kakarot-Handtke

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

At the beginning of every scientific investigation stands the following question “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (J. S. Mill)

The foundational propositions are called in methodology axioms. Every scientific discipline is ultimately based on axioms.

In economics we have Walrasian microfoundations and Keynesian macrofoundations. Both are clearly defined and provably false. So what is needed is a paradigm shift. As Keynes put it “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”#1

MMT claims to be a new approach, aka paradigm, and has published its foundational assumptions, aka axioms, on Wikipedia.#2. And what do we see here? the sectoral balances equation which is false since Keynes wrote I=S on p. 63 of the GT.

So, MMT is not a new paradigm but Post Keynesian rubbish. Keynes did not understand what profit is, and the abysmally incompetent After-Keynesians did not realize the foundational blunder in the last 80 years.

What is the last refuge of morons? It is Humpty Dumpty wordplay “’When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master — that's all’.”

This is NOT how science works. The freedom or arbitrariness of definition is a methodological illusion. It applies only to the first definition. Subsequently, one has to make sure that every new definition is consistent with the preceding ones. Formal consistency is indispensable.

The MMT balances equation is provably false. Because the foundational assumptions, aka axioms, are false the whole analytical superstructure of MMT is false. MMT policy guidance has NO sound scientific foundations.#3

Needless to emphasize that the Trump University economists Romanchuk, Kelton, Mosler, Mitchell, Tcherneva, Wray, Fullwiler, Forstater, Kaboub, Pettifor, Keen, Tymoigne, Willingham, Grumbine etcetera, who do not even get the elementary mathematics of macroeconomic accounting right and do not know what profit is, are too stupid for the opus magnum, that is, for the formulation of a consistent set of foundational propositions, aka axioms, of the hallucinatory new paradigm called MMT.

Egmont Kakarot-Handtke

#1 New Economic Thinking: the 10 crucial points

#2 Wikipedia, Modern Monetary Theory

#3 MMT: The one deadly error/fraud of Warren Mosler

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

Come to the point and tell everybody in a few clear sentences and a neat equation what the MMT definition of profit is instead of complaining that MMT is not just ‘Theory X’.

“In modern science, the term ‘theory’ refers to scientific theories, a well-confirmed type of explanation of nature [or sub-systems like the economy for example], made in a way consistent with scientific method, and fulfilling the criteria required by modern science.” (Wikipedia)

The criteria of modern science are material and formal consistency “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)

MMT is no valid theory because it lacks logical consistency and MMTer cannot even tell what profit is.

Egmont Kakarot-Handtke

AXEC / E.K-H said...

Brian Romanchuk

I asked you to state “in a few clear sentences and a neat equation what the MMT definition of profit is.”

You merely give the question back “What ‘profits’ do you want to know about?” In other words, you have no idea what profit is.

So, here we go, profit for dummies.

For the determination of monetary profit of the economy as a whole one has to start with the most elementary case of a pure production-consumption economy without investment, government, and foreign trade.#1 In this elementary economy three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero.
In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative.
In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

It always holds Qm+Sm=0 or Qm=−Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law. Total profit is scattered among the firms that comprise the business sector.

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, innovation, capital, power, monopoly, waiting, risk, greed, the smartness of capitalists, or any other subjective factors. Total profit/loss is objectively determined in the most elementary case by the change of the household sector’s debt.

Monetary profit/loss is measurable with the accuracy of two decimal places.

Needless to emphasize that the complexity of the monetary economy can now be successively increased. Accordingly, Qm=−Sm+Yd+I+(G−T)+(X−M) is the Profit Law for an open economy (X−M) with a government sector (G−T) and with business investment I and distributed profit Yd.

This equation tells everybody that Public Deficit = Private Profit and this, in turn, tells everybody that MMT’s relentless propagation of deficit spending for social purposes is nothing but agenda pushing for the one-percenters.

So, an MMTer is either stupid because he does not know what profit is, or corrupt because he deceives the ninety-nine-percenters.#2 Take your pick.

Egmont Kakarot-Handtke

#1 (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. For a start it holds X=O. Note that ALL variables are measurable.

#2 MMT is ALWAYS a bad deal for the 99-percenters

AXEC / E.K-H said...

Brian Romanchuk

Science is about universals. The Law of Gravitation is not different in Newton’s Cambridge, in the US, or in China but holds throughout the universe. However, when it comes to measurement, some practical problems arise because different countries measure mass or length in different units.

Therefore, the first and foremost task of science is to define the foundational concepts and their dimension (e.g. mass, length) consistently and with the utmost precision. This is the precondition of testing which is the final arbiter in science. In order to get rid of different national definitions of dimensions, in physics, natural units are used which are “physical units of measurement based only on universal physical constants”. (Wikipedia)

Analogously, economics has to establish a consistent set of foundational economic concepts (e.g. income, profit, employment etc) and then to figure out how they are related (e.g. Profit Law, Employment Law). How is this done? “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)

Economics has failed already at this first step. Profit is ill-defined since Adam Smith, and MMT is no exception. The scientific incompetence of economists stinks to the high heavens. Physics students all over the world can tell you precisely what energy is but economics students look up the definition of profit in their national tax code. This tells the general public everything about the absurdity of the claim that economics is a science.

Your reference to GAAP is a case in point. We are dealing here with the MMT balances equation which is a macroeconomic relation and macroeconomic magnitudes are measured by national accounting. Here the practical problem arises that different countries have historically developed their own systems. The problem of unification has been addressed by the United Nations System of National Accounts.#1, #2

The GAAP has the practical purpose of determining profit for taxing American firms. It has NO scientific content whatsoever. When we are talking about macroeconomic profit the GAAP is absolutely IRRELEVANT.

The axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)=(Qm−Yd). The MMT balances equation reads (I−S)+(G−T)+(X−M)=0. As everybody can see, monetary profit Qm and distributed profit Yd is MISSING in the foundational equation of MMT.

MMTers have not realized until this day that the most important real-world economic magnitude ― profit ― is absent in their “theory”. They even think they can look it up in the GAAP. More proof of manifest idiocy is not needed.

Egmont Kakarot-Handtke

#1 United Nations, 2008

#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

AXEC / E.K-H said...

Brian Romanchuk

It is pretty obvious that you are eager to demonstrate the world that you know the difference between Cash Basis and Accrual Basis accounting.

What you fail to recognize, though, is that we are talking about the MMT balances equation and national accounting principles and NOT about your personal bookkeeping and GAAP accounting principles. In other words, macro is about the universe and micro is about the molehill and you are unable to look beyond your molehill horizon.

I need not answer you silly GAAP bookkeeping question because I have explained the difference between macro- and micro accounting already to another smart MMTer. Just look it up.*

Egmont Kakarot-Handtke

* Solving Mill’s starting problem

AXEC / E.K-H said...

Brian Romanchuk/Bond Economics

Let us agree on the following

• There is micro and macro and the MMT balances equation is macro. So all your references to the behavior of firms and individuals and GAAP accounting principles are entirely beside the point.

• Macro is false since Keynes due to the Fallacy of Insufficient Abstraction. MMT has inherited Keynes methodological blunder. It is a historical fact that the Keynesian Revolution, i.e. the move from microfoundations to macrofoundations, i.e. the replacement of micro axioms by macro axioms, i.e. the paradigm shift, failed.

• If my argument sounds bizarre to you this has nothing to do with language or terminology but with the plain FACT that economics has failed in the last 200+ years to get the definition of the foundational concepts income and profit right.#1 MMT is NO exception. The actual state of economics is like medieval physics before the foundational concept of energy was properly defined and fully understood.#2 If this is not bizarre, what is?

• The question is not at all how my argument sounds but whether it is true or false. I wonder how long it takes MMTers to stop talking methodological nonsense and in earnest try to disprove the axiomatically correct balances equation.

• The whole issue boils down to this: Which one of the two macroeconomic relationships is true MMT=(I−S)+(G−T)+(X−M)=0 or AXEC=(I−S)+(G−T)+(X−M)−(Qm−Yd)=0?

We both know the simple answer: the AXEC equation is true and the MMT equation is rather bizarre because it applies to a zero profit economy. And this means that MMT policy proposals have NO sound scientific foundation.#3 Not one of them.

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith

#2 “Thousands upon thousands of scholars, as well as thousands of statesmen and men of affairs, have contributed their efforts to the attempt to understand the course of events of the economic world. And today this field of investigation is being cultivated more extensively, than ever before. How is it, then, that in all these years, and with all the undoubted talent that has been lavished upon it, the subject of economics has advanced so little?” (Schoeffler)

#3 MMT = proto-scientific junk + deception of the 99-percenters

AXEC / E.K-H said...

Brian Romanchuk

You say “If you think we can only define things one way, your investment in higher education was sadly wasted.”

Lack of definitions is NOT the problem. Just the opposite. In the political realm, at Trump University, or in the Station for Mentally Deranged you can define anything in multiple ways. Not so in science. If you leave science and rename MMT to MMB ― Modern Monetary Blather ― you can define anything in any way and are safe from criticism and refutation.

My higher education tells me that you are 2000+ years behind the curve “There are always many different opinions and conventions concerning any one problem or subject-matter …. This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other …” (Popper)

Egmont Kakarot-Handtke