Friday, March 2, 2018

Simon Wren-Lewis — The dangers of pluralism in economics: the case of MMT

I commented there but all comments are moderated so it may take some time to show up. Others have commented and their comments have been posted.

Mainly Macro
The dangers of pluralism in economics: the case of MMT
Simon Wren-Lewis | Emeritus Professor of Economics, Oxford University


Detroit Dan said...

Thanks Tom. I look forward to seeing your comments. (I left a comment there as well.)

Fun to see JKH commenting there. I learned a lot from him about banking and accounting, but I don't share his attitude toward MMT. For me, MMT provides a coherent world view, nicely supplemented by history and monetary anthropology (e.g. "Debt, the First 5000 Years"). I've never seen analysis by Simon Wren Lewis and JKH as part of a coherent world view.

SWL brings up "political discourse" as the problem with MMT, and there is no doubt that Mitchell, Wray, and Kelton, amongst others, have strong political viewpoints related to their development and advocacy of MMT. But, for me, this core group of MMT academics has done a good job of separating their political beliefs from their economic "theory". I've found the economic theory unassailable, nitpicking from JKH and the other quarrelsome guy whose name I forget aside (just remembered his name - Ramanan).

So follow MMT if you want to understand the world works and evaluate specific issues in a coherent context. Use mainstream economic language if you must in order to not be an asshole.

Matt Franko said...

@But, for me, this core group of MMT academics has done a good job of separating their political beliefs from their economic "theory".

What movie have you been watching????

Matt Franko said...

Btw Bill has pretty much acquiesced to Ramanan’s views wrt the external balance..

Matt Franko said...

This whole brouhaha is far from a scientific discussion ... it’s a bunch of intra Labor Party cat fighting...

Bob Roddis said...

On the key issue of whether monetary or fiscal policy should be used as the main stabilising tool......

The market does not destabilize on its own accord. The market is, in fact, externally destabilized by monetary and "fiscal" policy, which, in addition to its theft of resources from non-criminal citizens, impairs honest pricing and economic calculation creating an unsustainable price, capital and investment structure.

Ralph Musgrave said...

Detroit Dan says "I left a comment there as well".

Wren-Lewis has a habit of waiting till 12 to 24 hours after his articles are published and then publishing comments that have come in by that time, and not publishing any further comments. So don't be surprised if your comment doesn't appear: it wont be anything personal.

I get a short comment in on time, which was published.

Matt Franko said...

“The market is, in fact, externally destabilized by monetary and "fiscal" policy“

Bob is correct here on this part but then botches it with some sort of libertarian rant...

Detroit Dan said...

Thanks Ralph. Sounds like Wren-Lewis needs to up his game on approving comments. Perhaps he can spend less time on Twitter so that he has more time to moderate a serious discussion at this blog.

John said...

Matt, I'd be interested to read the Mitchell-Ramanan discussion. I've usually found Ramanan to be a very keen student of Bill's. Even when Ramanan thinks he may have got one over on Bill, we usually find he hasn't. Ramanan's a damn clever guy who asks really penetrating, sometimes highly subtle, questions. Bill's posts aren't always as clear as they should be. Look at the length of them, and he writes these monsters nearly every day, so a little ambiguity may creep in. Bill always clears them up. No surprise, Bill is the undisputed master

Matt Franko said...

Bills writing has become more sensitive to the external balance over time...

Calgacus said...

Matt:Bill has pretty much acquiesced to Ramanan’s views wrt the external balance.
It might appear that way, perhaps, but not really - Bill Mitchell doesn't clearly differentiate often enough between his own views of what might be good ideas (especially in less developed countries) and what are recommendations which it would be insane not to follow (Zero unemployment always, which implies floating rates) and what are hard constraints. The occasionally good but not necessary ideas are where there is similarity to Ramanan, who wrongly sees these as hard, even logical necessities.

The basic MMT view is the same as the FF view or Keynes's "Take care of employment and the budget will take care of itself". Or take care of employment and the external balance will take care of itself. Basically everything else takes care of itself if you just decide to have zero unemployment. I think if Ramanan posted at Billyblog again the differences and Bill Mitchell's MMT position would become clearer - but one can read old discussions to see the difference.

I agree with Detroit Dan, they have in general separated their political beliefs from the theory.

Matt Franko said...

Imo Ram is just trying to get past the pure accounting and get more focused on the real terms that the accounting abstractions represent...

Trump is saying the same thing wrt us external balance representing a real degradation in us domestic production... so Trump is forming new corrective policy ...

Matt Franko said...

“I agree with Detroit Dan, they have in general separated their political beliefs from the theory.”

That defies all observation...

Calgacus said...

Ramanan & JKH are very smart people one can learn from, who I wish would engage more. And which the core MMTers might engage differently. Whenever these prodigal sons come back from their travels, I think the proper response is to slaughter a fatted golden calf to celebrate a serious discussion with them.

But there are real differences. Ramanan believes in an external constraint on domestic expansions, which does not exist. (Though as an example of beneficial clarifying influence, I think discussions with him led to MMTers emphasizing governments not backing private foreign-denominated debt, not just not issuing foreign-denominated debt as part of "monetary sovereignty".)

An example might be Mitterand's turn to austerity in France in the early 80s. Ramanan would probably say (maybe has said) that this was forced, that there was no choice, as Mitterand and the great majority of commentators, right and left have said. Bill Mitchell (& the Keynesian Robert Eisner in a report commissioned back then but then ignored by the French government) say - who cares? At worst the exchange rate for the franc will drop a bit. This is a minor and partially self correcting problem. Not eradicating unemployment by returning to the postwar era's policies, as Mitterand did at first, for such external balance reasons is insisting on making the tail wag the dog.

At the same time, but rather less conspicuously, Bruno Kreisky's Austria successfully but nearly alone among the rich countries, prioritized domestic "expansion" (a word that really means "not strangling and sabotaging yourself" in economics). A decent controlled lab experiment that showed who was right: the sky did not fall in Austria.

That defies all observation...
Well, what do you think is the worst example of this?

Detroit Dan said...

Thanks Calcagus for the Bruno Kreisky reference. I didn't know about him, and have enjoyed catching up on this part of Austrian history.

geerussell said...

Told you so. Just sayin.

Matt Franko said...

Trump isn’t calling for “austerity” to accompany his tariffs here btw... so you can’t call Trump part of the “neoliberal conspiracy!”...

Trump understands the accounting he’s demonstrated that via his statements.. ... further he understands “accounting” ie it’s an abstraction...

I’m pretty sure he and Navarro expect the fiscal deficit to reduce if they get the real response to their trade policies they are looking for...

Matt Franko said...

Btw we got a February ‘18 deficit only 18b larger than February ‘17 when a major INFOSEC problem delayed Tax refunds in February ‘17...

Matt Franko said...

Trump is at least leveraging the political unpopularity of the one half of the “twin deficits!” to help him get his real policy outcomes... which is more than anybody else has ever got done ...

AXEC / E.K-H said...

Political economics: Who hijacks British Labour?
Comment on Simon Wren-Lewis on ‘The dangers of pluralism in economics: the case of MMT’

Bill Mitchell writes: “Another point that interests me here is the role of academia. Historically, our role was to bear witness to governments and their behaviour. To provide ‘independent’ scrutiny. That role was one of the reasons that tenure was introduced ― to allow us security of employment no matter what we said about governments or other powerful entities. …These days, academics have largely lost tenure … and are bullied by managerial bosses into virtual silence for fear that Government Ministers will ring up their institutions and damage their prospects if they speak out openly.”#1

Economics always claimed to be a science. It never was. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics (= 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. And this means, in turn, that economic policy guidance NEVER had sound scientific foundations. Economists have NO scientifically valid knowledge about how the price- and profit-mechanism works.#2 There is a total logical DISCONNECT between economic policy arguments and economic theory.#3

The lack of a scientifically valid theory, though, never prevented economists from assuming the role of useful political idiots.

What can be observed at the moment is that New Keynesianism and MMT is trying to get hold of Labour’s economic policy lever. New Keynesianism is derived from Walrasianism which is scientifically dead since 140+ years. MMT is derived from Keynesianism which is defunct since 80+ years because Keynes messed the analytical foundations of macro up. So, neither approach has sound macroeconomic foundations.

Apart from this lack of qualification, economists have entirely forgotten that politics and science are ruled by entirely different principles and that both spheres have to be strictly kept apart. As J. S. Mill had it: “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.”

This did not make much impression on the agenda pushers of all colors and this, in turn, explains the fact that economists are since 200+ years fooling around at the proto-scientific level. Scientific failure, of course, does not matter at all in the political sphere where a scientific bluff package has at all times been quite sufficient.#4

Egmont Kakarot-Handtke

#1 billy blog

#2 Mass unemployment: The joint failure of orthodox and heterodox economics

#3 Paul Krugman and economic poultry entrails reading

#4 MMT and grassroots movements

Detroit Dan said...

Yup. geerussell -- You make a good point. Ever since I've learned MMT, I haven't been able to read Krugman or DeLong and find any great insights. On good days, they're stumbling upon MMT. On other days, they're just mumbling. SWL seems about the same. Hate to sound disrespectful, but that's my perspective. And of course Krugman never credits MMT. I consider him not serious and don't read him anymore.

Matt Franko said...

Well he just turned 65 Dan so maybe we’ll get lucky and he’ll retire...

Matt Franko said...

“What can be observed at the moment is that New Keynesianism and MMT is trying to get hold of Labour’s economic policy lever.”

You got that right Egmont ... that is all this is...

Detroit Dan said...

Same age as me, and I'm retiring April 1. So there's hope (c:

andy blatchford said...

What can be observed at the moment is that New Keynesianism and MMT is trying to get hold of Labour’s economic policy lever."

Both might be trying but it's a Marxist who has and no not MccDonel it's his advisor and if you don't know who that is you know nothing about what is going on.

John said...

Clagacus and Detroit Dan, who is this JKH? Does he (or she) just leave comments on threads or do they have a blog or a site?

Matt Franko said...

"but it's a Marxist who has"

Corbyn himself?

Matt Franko said...

JKH: "Unfortunately MMT seems to be allergic to useful compartmentalized management accounting."

He's got it... they just dont have the proper training to advance their understanding... doesnt look like they have had a new thought in 20 years... have to constantly resort to the dreaded "neoliberal conspiracy!" theory when they hit the wall....

Tom Hickey said...

SWL has apparently already retired. He is now identified as emeritus professor.

Tom Hickey said...

Seumas Milne is right on target.

andy blatchford said...

Corbyn a Marxist Matt? Seems unlikely as he is just and old style Social Democrat.

It is quite amusing watching the comments. Clueless.

Tom Hickey said...

Andy, Social Democrats are Marxists from the point of view of many Americans, especially on the right. And even "the party of the left," the Democratic Party, is largely center right, and even the left wing is conservative in comparison with the European Left.

Calgacus said...

John: JKH used to be a frequent commenter on MMT blogs years ago. He is a banking professional and knows a lot of nitty gritty stuff. Years ago, 2012?, Cullen Roche (main site PRAGMATIC CAPITALISM) along with Beowulf & JKH etc split off from MMT and called themselves MMR or MR (modern) monetary realism.

The monetary realism site seems offline now, The latest wayback version is here Monetary Realism
Understanding The Modern Monetary System

Detroit Dan: Kreisky anecdote too good for me not to repeat yet again - showing him wittier than the famous wit who recounted it later:
John Kenneth Galbraith asked Kreisky back then what was the secret of his, Austria's economic success.
Kreisky replied "Our exports", which puzzled Galbraith since it seemed quite wrong.
Since Galbraith couldn't even think of such an economically important good, he asked what export Kreisky had in mind.
Kreisky said: "Economists!"
(Sorry, Bob)

AXEC / E.K-H said...

Matt Franko

To debunk Wren-Lewis’ New Keynesianism, as Bill Mitchell has done in his series#1, is the easy part. Yes, anyone who has said in the last 140+ years that mainstream economics is garbage has been right. The point is that debunking has run its course by now and that the world is tired of Walrasianism, Keynesianism, Marxianism, Austrianism and wants to know what the true economic theory looks like.

Bill Mitchell makes two claims, (i) that MMT is the scientifically correct description of how the actual monetary economy works, and (ii), that MMT’s progressive political agenda promotes the cause of the ninety-nine-percenters.

With regard to the actual political situation in Britain this boils down to (i) New Keynesianism, represented by Simon Wren-Lewis, misleads Labour, (ii) MMT, represented by Bill Mitchell, and Labour are the political dream team.

Both claims are false. MMT does not satisfy the scientific criteria of material/formal consistency. It has been proven that the MMT balances equation is false.#2 So, MMT is NOT scientifically superior to New Keynesianism. Both share the same methodological defect, that is, the foundational economic concepts profit and income are ill-defined. This is lethal for every economic approach.

The two most popular MMT claims, i.e. deficit spending/money creation easily fixes most economic problems and debt does not matter, are misleading at best. Deficits matter for distribution.#3 More specifically, public deficits are the main drivers of upward redistribution from Keynes onward.#4

The academic Wren-Lewis has been denounced by MMTers as neoliberal agenda pusher. So, the question is legitimate, whose agenda the academic Bill Mitchell is pushing.

Bill Mitchell argues: “Another point that interests me here is the role of academia. Historically, our role was to bear witness to governments and their behaviour. To provide ‘independent’ scrutiny.”

This independence never existed. Economics started as Political Economy and only wrapped itself at some point in history in the cloak of science. In fact, the majority of economists never rose above agenda pushing. As a consequence, economics never reached the heights of scientific independence, objectivity, and truth. From this follows: “So we really ought to look into theories that don’t work, and science that isn’t science.” (Feynman)

What do we see when we look closer into MMT? Bill Mitchell argues: “A rising fiscal deficit is neither good nor bad. It all depends on the saving and spending desires of the non-government sector and the state of capacity utilisation. A rising deficit associated with a growing economy and full employment with stable prices is to be desired.”#5

The MMT swindle lies in the word non-government sector. There is NO such thing as the “non-government sector”, there are TWO sectors, the business- and the household sector. And the business sector does NOT save. Saving/dissaving is the balance of the household sector, profit/loss is the balance of the business sector. The word profit, though, does not appear once in Bill Mitchell’s analysis. Why? Because it holds Public Deficit = Private Profit which means that Bill Mitchell does not really care about poor Britain but about the wellness of the one-percenters.#6

Egmont Kakarot-Handtke

#1 The New Keynesian fiscal rules that mislead British Labour

#2 Rectification of MMT macro accounting

#3 Deficits matter for distribution

#4 Keynes, Lerner, MMT, Trump and exploding profit

#5 Oh poor Britain …

#6 MMT: academic snake oil for the people

Ralph Musgrave said...


JKH was teaching at the Manchester Business School in the UK around 5 years ago. I'm fairly sure JKH are his real initials, but I've forgotten his name.

Detroit Dan said...

Good anecdote re Kreisky. Thanks!

John said...

Calgacus and Ralph,

Thanks for your answers. I'll try and track down some of his stuff.

Matt Franko said...

"The MMT swindle lies in the word non-government sector. There is NO such thing as the “non-government sector”, there are TWO sectors, the business- and the household sector. And the business sector does NOT save. Saving/dissaving is the balance of the household sector, profit/loss is the balance of the business sector. The word profit, though, does not appear once in Bill Mitchell’s analysis. Why? Because it holds Public Deficit = Private Profit which means that Bill Mitchell does not really care about poor Britain but about the wellness of the one-percenters.#6"

Egmont you are going over the top here...

1st, Bill is not in any way shape or form a tool of the 1%ers...

You say, there are two sectors, business and household... what do you then see as the function of the govt institution?

I'm sure you agree the govt institutions exist?

Matt Franko said...

govt some sort of "regulator" between the business and household sectors? ie govt not a 'sector' per se itself?

Tom Hickey said...

Government is a financial and economic participant and a very big one in developed countries. Government is also the setter of institutional arrangements, arbiter of standards, and overseer of arrangements and standards.

AXEC / E.K-H said...

Matt Franko

Bill Mitchell makes the distinction between government sector and non-government sector. I say, there is the government sector on the one side and the household and the business sector on the other.#1 You say “I’m sure you agree the govt institutions exist?” Are you sure that you don’t have Alzheimer? I say that the household and the business sector cannot be analytically lumped together to the “non-government sector” because this makes profit invisible.#2 I have called this elsewhere the Humpty Dumpty Fallacy.

You say: “Bill is not in any way shape or form a tool of the 1%ers...”. I am in no way involved in the inner life of fellow economists. What alone matters is what they express on their blogs, in papers, and books. Because MMTers propose deficit spending as cure-all and because the macroeconomic balances equation tells one that Public Deficit = Private Profit, MMT policy OBJECTIVELY benefits the one-percenters. Whether this is an unintended effect of a well-meant measure for the ninety-nine-percenters or whether this is the intended outcome is open to motive speculation which is known to be entertaining but irrelevant.

It is, in any case, wrong to claim that MMT policy benefits the ninety-nine-percenters when axiomatically correct macroeconomic analysis proves that it benefits the one-percenters.#3 Scientifically, the matter is settled.

Egmont Kakarot-Handtke

#1 Foreign trade is left out of the picture. For more details see Rectification of MMT macro accounting

#2 MMT and the magical profit disappearance

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

Matt Franko said...

"Are you sure that you don’t have Alzheimer? "

No... I dont have Alzheimers.... but at least its good to know there is somebody out there crankier than me in all of this... :p

Matt Franko said...

More than the 1% are savers... my grandfather used to save and his income was like $13k iirc...

Also a lot of wealth of the 1% is measured in assessed value of real assets not USD savings per se...

AXEC / E.K-H said...

Matt Franko

I say, Bill Mitchell’s NON-government sector does not exist and that from the macroeconomic balances equations logically follows Public Deficit = Private Profit and you ask “I’m sure you agree the govt institutions exist?”

Your attention span is obviously extremely short.

The point is that the government sector is instrumentalized for boosting overall profit of the business sector aka one-percenters. MMTers sell this as care package for the ninety-nine-percenters. How cranky is this?

Egmont Kakarot-Handtke

Tom Hickey said...

Bill Mitchell’s NON-government sector does not exist

Consolidation is a methodological convenience and a pedological instrument, not an ontological assertion.

Consolidation is hardly unique to MMT.

MMT economists begin their use of consolidation with "consolidating …."

When questioned or criticized about this as an ontological assumption, they point out of it is a methodological convenience and pedological tool.

This is a commonly used objection against MMT that MMT economists have rejected and explained.

AXEC / E.K-H said...

Tom Hickey

Your philosophical blather about convenience, pedagogy, and ontology is way beside the point. What you call consolidation is either stupidity or fraud, on a par with 2+2=5. What Bill Mitchell and the rest of MMT commits is the Humpty Dumpty Fallacy.

In the elementary investment economy, macroeconomic profit Q is equal to the difference of business sector investment I and household sector saving, i.e. Q=I−S (i).

Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “saving of the business sector” and that this “saving” can be added up (= consolidated) with saving of the household sector to “total saving” Σ thus
(a) Σ≡Q+S and now (i) is rewritten
(b) Q+S=I and then, hey presto,
(c) Σ≡I that is, “total saving” is “by definition” identical to investment or in the usual sloppy parlance “saving equals investment” which obviously contradicts (i) and ― strangely enough ― makes profit invisible.

This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT p. 63)

The axiomatically correct complete balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. And the false MMT balances equation reads (I−S)+(G−T)+(X−M)=0

The MMT balances equation is FALSE and this has NOTHING to do with ontology but with the elementary mathematics of macroeconomic accounting.

Science is about proof and measurement. MMT is provably false.

Egmont Kakarot-Handtke

Calgacus said...

Egmont Kakarot-Handtke: The astonishing idea that one cannot consolidate the business and household sectors is the absurdity, the fallacy, the Humpty-Dumpty behavior. It is like saying other people aren't allowed to add three numbers in the order they like (A + B) + C because you don't like the intermediate result A + B for some reason, and that they must do it A + (B + C), or add all three at once somehow. Purely idiosyncratic and arbitrary restrictions like this are not yet 2 + 2 = 5, but getting close.

True, economists have a long bad history of writing equations without defining what the terms in the equations represent and creating pointless strife over this, but a bizarre restriction like this is a step backwards into definitional chaos, not steps forward as the MMTers make.

If one wanted to, one could make aggregates for a sector of red-headed businessmen and brunette-headed households versus everyone else in the non-government versus the government. What this tripartite division means and what use it would be is obscure, but it can be done.

The MMT claim is that their split up (or consolidation) is useful. Claiming that it cannot be done, that the "NON-government sector does not exist" is an absurdity which is obvious to a child, is something that belongs in Economists in Wonderland.

Do you mean that talking about the non-government is useless? Then I suggest that you say that, not that it is impossible, that the non-government doesn't exist.
The latter is preposterous, but at least it is not unintelligible, not self-contradictory. It is not saying that one cannot do what is being done by the very act of saying it cannot be done, as "the non-government doesn't exist" does.

Neil Wilson said...

"Btw Bill has pretty much acquiesced to Ramanan’s views wrt the external balance.."

No he hasn't Matt.

The external balance is an accounting artefact, a dynamic illusion. Ramanan just gets hold of the Kaldorian wrong end of the stick because he sticks rigidly to country borders.

AXEC / E.K-H said...


As everybody knows, there are inadmissible operations in mathematics, e.g. division by zero. Likewise, there are inadmissible operations in the process of the definition of a subject matter, e.g. giving two names to the same thing. Trivially, if you are a witness and tell the police that Maria crashed the car against the wall and one minute later that Josef crashed the car and when the police officer remarks there is a contradiction and you answer no, not at all, its the same guy I only call him sometimes Maria and sometimes Joseph you are not regarded as a reliable witness but as a moron or worse, as an economist.

So, one more time in slow motion.

The elementary production-consumption economy is for a start given by two sectors, i.e. household- and business sector, and defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Q≡C−Yw, S≡Yw−C).

Wage income Yw is a flow from the business to the household sector. Consumption expenditures C is a flow from the household to the business sector. Profit/loss is the DIFFERENCE of these two flows Q≡C−Yw and saving/dissaving is the exact mirror image S≡Yw−C.

Because we have TWO sectors we have TWO balances and if we “consolidate” the two sectors we get Q+S=0, that is, trivially, for the economy as a whole, there is NO balance. “Consolidation” destroys the information about profit/loss and saving/dissaving that we have gained by splitting up the economy into two sectors.

So, we have the flow wage income Yw and the difference of flows (= balances) profit/loss Q and saving/dissaving S. Note that a flow is always positive, while a balance can be either positive or negative. A smart macro accountant knows that to lump a flow and a balance together is a category mistake.#1 Economists commit this methodological blunder since Adam Smith. They still do not realize that by saying total macroeconomic income is the sum of wages and profits they are exposing themselves as incurable incompetent scientists.

From the definition Q≡C−Yw follows by mindless symbol manipulation Q+Yw≡C, so the sum of Q and Yw is already implicitly defined by the initial definition of profit/loss.

To introduce an ADDITIONAL definition of the sum of wages and profits is forbidden by the methodological rule called Occam’s Razor. So, Ψ≡Q+Yw is INADMISSIBLE and leads to Ψ≡C which says that two symbols are used for the same thing. The formula states that the word total income (symbol Ψ) and the word consumption expenditures (symbol C) can be used interchangeably.

Obviously, this is semantic madness. However, in the formulation total income is equal to the value of output is sounds like a deep economic insight. And so this Humpty Dumpty stuff became the foundation of Keynesianism: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Post Keynesians, Anti-Keynesians, and MMTers have not realized until this day that they are caught in a methodological delirium. Because the foundational balances equation of MMT is proto-scientific junk the whole of MMT is proto-scientific junk, that is, brain-dead political agenda pushing for the one-percenters.

Egmont Kakarot-Handtke

#1 A tale of three accountants

Calgacus said...

Egmont Kakarot-Handtke:

Everything depends on how you define your variables. I have asked you to do so before IIRC. The equations are the genuine trivialities, "mindless symbol manipulation". Not defining the variables in them is the "inadmissible process". You are omitting the essential and starting in the middle. Your most elementary situation is usually far more complex than the elementary situations basic MMT is talking about. Not using symbolic variables at all, using the phrase describing the thing that the variable is supposed to represent, would be a first step into making what you are saying intelligible.

Other points: Other people are not bound to your definitions. Other people are not bound to be saying what you are saying. If they don't want to talk about profit, however defined, that is their prerogative. Giving two names for the same thing is not such a serious "error" and is not usually considered "inadmissible". Maybe the guy's name is Joseph Maria.
The error you may be thinking of is that the giving of two names implies that there are two different things being named.
The worse error is giving the same name to two different things. Even that may not always entirely wreck an argument. Little may be lost by calling both Tweedledum and Tweedledee "Tweedle~".

Consolidation may destroy information, sure. But it may highlight the point one is trying to make - which may not be the point you are trying to make. Your consolidation / aggregation of all businesses into a "business" and all households into a "household" sector destroys an enormous amount of information. But you are doing it for some purpose and nobody says you are wrong to do so, or that "the business sector does not exist". Denying a slight further consolidation as mystically inadmissible - is clearly inadmissible - and weird.

My sole point is that "the non-government sector does not exist" is a manifest absurdity. Once you have delimited one country, for simplicity with no relations to the outside world - Or just take the whole planet Earth - and say it has a government and a money economy, then there is a non-government and one can speak reasonably about its financial relations with the government. There really is nothing else to say about it.

Whatever you mean by "the non-government does not exist" - it cannot be what that sentence plainly says, and I suggest you say whatever you mean instead of that.

Tom Hickey said...

Abstraction, aggregation and consolidation are similar. Abstraction relates to concepts. Aggregation related to types. Consolidation relates to accounts.

For example, critics accuse MMT economists of failing to recognize the institutional separateness of the Treasury and central bank as entities. MMT economists respond that what they are taking about is consolidating books of a single overarching entity called government, which economists regularly symbolize as "G" and "G-T". This entity is also called "the public sector" in economics, and its complement in the system is called "the private sector" in closed economy, and "non-government" in an open economy.

All the accounts in the private sector alone must sum to zero as an accounting identity in the unit of account. All the accounts in non-government must also sum to zero in an open economy in the unit of account.

Accounts do this sort of consolidating all the time. Accounting reports involve consolidation based on a chart of accounts, for example.

This is all trivial from the accounting point of view and arguing about it is a waste of time.

Calgacus said...

This is all trivial from the accounting point of view and arguing about it is a waste of time.

Yep. Which is why EKH's claim is so weird.

For the more serious case of the "critics accuse MMT economists", the critics fail to note precisely what the MMTers are saying: (1) That the consolidation is essentially harmless in terms of government actions, because the Treasury is the dog and the CB the tail, not vice versa.

MMT says (1), but the critics think it is an axiom, while the MMTers say it is a theorem that follows from any reasonable list of "axioms" of how CBs and Treasuries behave, so it is true in practice right now, whatever constraints appear to be there being only apparent, not real.

Tom Hickey said...

Right. In the US, Congress appropriates spending. Agencies spend. Treasury "writes the checks." The Fed clears them.

This is the uses of funds.

Sources of funds are taxes from the TGA and TT&SL accounts supplemented by debt issuance in the case of deficit spending.

The Treasury and Fed coordinate to ensure that all books are in balance by the end of the day, which is the normal accounting period for financial institutions, by drawing on accounts and selling tsys into the market through the primary dealers, which credits accounts.

According to mid-level Fed officials, the books are actually always balanced within a few hours, where as commercial banks operate on close of the day basis. This is the purpose of the overnight market for federal funds.

This is SOP (standard operating procedure).

Tom Hickey said...

TT&SL accounts should be TT&L

AXEC / E.K-H said...


There is 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.

Scientific standards are well-defined since 2000+ years: “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)

Anybody is entitled to push any agenda and to talk as much incoherent BS as she/he likes. But nobody is entitled to claim that she/he is doing science when she/he is, in fact, pushing a political agenda. This is plain fraud.

The ethics of science consists in the free/voluntary commitment to the highest standards of material/formal consistency. MMT does not satisfy these standards and MMTers violate scientific standards on a daily basis.

You are simply pleading for anything-goes: “Other people are not bound to your definitions. Other people are not bound to be saying what you are saying. If they don’t want to talk about profit, however, defined, that is their prerogative. Giving two names for the same thing is not such a serious ‘error’ and is not usually considered ‘inadmissible’.”

Nothing new here, this is the modus operandi of the Humpty Dumpties of political economics: “As some one has said, it would seem that even the theorems of Euclid would be challenged and doubted if they should be appealed to by one political party as against another.” (Fisher, 1911)

There is NO problem with people who claim to fight for the ninety-nine-percenters and in fact push the agenda of Wall Street. That is politics and more is not to say about it. The problem of economics is that academic economists claim to do science and in fact push an agenda. This applies to Walrasians, Keynesians, MMTers, Marxians, Austrians, and Pluralists.

The problem with economics is how can society get rid of incompetent/stupid/corrupt fake scientists and political clowns like Paul Krugman, Warren Mosler, Simon Wren-Lewis, Steve Keen, Bill Mitchell, and not to forget you, the philosopher Tom Hickey, Matt Franko, Peter Cooper, Brian Romanchuk and all the rest of MMT trolls, and to move from incoherent blather to material/formal consistency and so finally become a science.#1, #2

Alternatively, simply rename MMT to MMP ― Modern Monetary Party ― and leave science. Mind you, a theory has to be materially/formally consistent and MMT is NOT.

Egmont Kakarot-Handtke

#1 Economists: political trolls since 200+ years

#2 For details see cross-references Failed/Fake Scientists

Calgacus said...

You are simply pleading for anything-goes: “Other people are not bound to your definitions. Other people are not bound to be saying what you are saying. If they don’t want to talk about profit, however defined, that is their prerogative. Giving two names for the same thing is not such a serious ‘error’ and is not usually considered ‘inadmissible’.”

No, I am not. In no way am I saying "anything goes". I am suggesting that following the usage of ordinary language and scientific and expository standards and methods that everyone else does, or at least understands, is a good idea. Not giving definitions and insisting that everyone use the ones you don't give is very H-D. What you are doing is like saying that since "gift" means poison in German, that is the true meaning and that English speakers, even those who never heard of German, are wrong to say it means "present" as in "birthday present". Since I am asking for definitions of terms being used, I am being less anything goes, less Humpty-Dumpty. (If a person does that asking enough, he might get popular enough to have to drink a cup of hemlock.)

People don't always have to be talking about profit. Surely you occasionally utter sentences that have nothing to do with profit? And the words you use then have definitions that have nothing to do with profit? Why can't anybody else do the same?

On two names, surely if we were all in a room, you would know who was being referred to if someone called out either "Egmont" or "Kakarot-Handtke"? And if there were only one other person in the room, "not you", said to you, would clearly mean to you- that other person? Natural languages and many many artificial or logical ones certainly do have a resource of negation sufficient to make "non-" & thus non-government perfectly expressible, intelligible and interpretable in whatever domain they are being applied to. Is this "anything goes"?

Do you still maintain "The non-government does not exist"? What do you mean by that? It seems that to everyone else here, saying that the government exists but the non-government does not is unintelligible. You seem to be insisting on the truth and importance of something blatantly self-contradictory. How one can claim to oppose "incoherent BS" and support scientific standards, "formal consistency" and "logical cohesion" and say such things is beyond me.

Concerning Euclid, around the time or a little before Irving Fisher said that, there was a mathematical education movement in Britain led by John Perry, the Perry movement. One of the things it reformed was the bizarre practice in some examinations of marking answers "wrong" if they did a geometric construction or proof from Euclid and labeled the points and figures differently from the way the standard textbook did. Genuine knowledge and understanding was thus denigrated in favor of completely arbitrary memorization. Maybe those those late Victorian examiners thought Perry was saying "anything goes" too.

AXEC / E.K-H said...


Your wordplay does not help. A theory has to satisfy the criteria of material/formal consistency. MMT does NOT. So MMT and MMTers are out of science. MMT is political agenda pushing in a scientific bluff package, that’s all.

The MMT marketing/sales/PR team consists of characters like Stephanie Kelton who talks about ponies and care for the ninety-nine-percenters, and characters like Bill Mitchell who defines profit away by “consolidating” the business- and the household sector and by redefining profit as “private” or “non-governmental” saving. The MMT agenda pushers are going to great lengths asserting that deficits are good for the people and skating around the basic economic relationship Public Deficit = Private Profit.

To come back to the core issue. Simon Wren-Lewis’ New Keynesianism is proto-scientific junk, Bill Mitchell is right on this score. But Bill Mitchell’s claim that MMT is superior is provably false. Fact is, New Keynesianism is based on false microfoundations and MMT is based on false macrofoundations. So both approaches are axiomatically false.

What is common to both approaches is that they got profit theory wrong. And this is the real kicker: after 200+ years, economists of ALL schools do not know what profit is. So, the debate between Simon Wren-Lewis and Bill Mitchell has NO scientific content at all.

As a practical consequence, the best thing British Labour can do in the current situation is to keep both New Keynesians and MMTers out of their advisory council.#1

You say: “People don’t always have to be talking about profit.” No, but we are not on Facebook where people are supposed to hit the Like/Dislike button like lab rats. An economic theory/model that does not contain the variable profit lacks the most important element of economic reality. And what stupid people “think” about profit is irrelevant. Populism is important in politics but not at all in science. Just the opposite, the common sense people are the worst nuisance for science as already J. S. Mill made clear.

“People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, ... , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.”#2

What the MMT bigots of common sense say about profit is provably false. Profit is the foundational concept of economics, therefore the whole analytical superstructure of MMT is proto-scientific junk.

By splitting up the elementary monetary economy into two sectors ― business and household ― two balances become visible: profit/loss and saving/dissaving. These variables are well-defined and measurable with the accuracy of two decimal places by proper National Accounting. With Bill Mitchell’s “consolidation”, i.e. the lumping together of the business- and the household sector, the balances between the sectors disappear again.#3 MMT’s “consolidation” is a methodologically inadmissible operation and because of this the “non-government sector” does NOT exist, it is a Humpty Dumpty construct.

What MMTers do is either idiocy or fraud.#4 With silly analogies and populistic blather, you are trying to obscure this plain fact. In vain, the proof stands: the tripartite MMT balances equation ― as extensively paraded at Google Images #5 ― is materially/formally inconsistent.

Egmont Kakarot-Handtke

For the References see

AXEC / E.K-H said...

How MMT fools the ninety-nine-percenters

One of MMT’s wake-up shocker slogans is: Taxes Don’t Fund Gov’t spending. This is operationally true, of course, but raises false expectations. What is sold as a benefit for the ninety-nine-percenters turns out to be a benefit for the one-percenters. MMT policy is false/misleading because MMT theory is false, more specifically, MMTers do not know how the price- and profit mechanism works.

In order to go back to the basics of economics, the elementary production-consumption economy is for a start defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (profit/loss Q≡C−Yw, saving/dissaving S≡Yw−C).#1

It always holds Q+S=0 or Q=−S, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and, vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. This Law refutes the MMT profit theory. So, strictly speaking, MMT has scientifically finished already at this point.

Money is needed by the business sector to pay the workers who receive the wage income Yw per period. The workers spend C per period. Given the two conditions, the market clearing price is derived for a start as P = W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.

The average stock of transaction money follows as M=kYw, with k determined by the payment pattern. In other words, the “quantity of money” M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy never runs out of money.

Now, the government starts deficit spending. Economically, it does not matter much for what purpose. The money, which is created by the central bank, is simply handed over to a social subgroup which fully spends it.

Government spending is denoted by G. The new market clearing price is now given by P1=(C+G)/X which translates into P1=P+G/RL, that is, there is a price hike which depends on the amount of the government’s deficit spending G. If G is small in relation to total output O=RL the price hike is almost imperceptible. There is NO such thing as inflation if the deficit is repeated period after period. The elevated price P1 remains constant. However, the debt of the government vis-a-vis the central bank rises continuously. This can go on for an indefinite time.

MMT is right, taxes are not required to fund government spending and debt does not matter for the time being. However, that does not mean that the wage income receivers are not taxed in real terms. The price hike reduces the real quantity Yw=C can buy, that is, the wage income receivers are taxed in real terms.

What about the one-percenters? With total expenditures C+G and unchanged wage income profit is now equal to government deficit spending and rises from zero to Q=G.

Due to stealth taxation and the profit Law which says that Public Deficit = Private Profit, deficit spending/money creation is always a bad deal for the ninety-nine-percenters. MMT policy ultimately benefits alone the one-percenters.#2

Right policy depends on true theory. MMT is proto-scientific junk, just like Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism.

Egmont Kakarot-Handtke

#1 For the detailed description see ‘How the intelligent non-economist can refute every economist hands down’

#2 For the full-spectrum refutation see cross-references MMT