Monday, February 18, 2019

Dirk Ehnts — The Economist misrepresents MMT

I have read the articles that The Economist published on Modern Monetary Theory (MMT) in the current edition of the liberal-leaning magazine (hereand there). I am not happy with the reporting, which includes false statements in general and also misrepresentations of what MMT is....
The Economist just put the UK debate on progressive economic policy on a slippery slope, claiming that a particular school of economics science constitutes “doctrine” and then misrepresenting that school’s views. They should know better than this...
Dirk Ehnts points out that the problem lies with the framing The Economist uses. The frame is based on assumptions that MMT argues are wrong based on the evidence. It is therefore a bogus argument against a straw man set up by the frame. 

This is at heart a political (ideological) issue being framed as an economic one, from a bias that doesn't hold up to scrutiny when compared with reality. The Economist tries to frame MMT as lef-wing ideology and conventional economics as science. NOT!

Neoclassical economics ignores the accounting and the institutions that lie at the foundation of the issues and determine the correct frame. MMT explains this, both explicating the correct frame and showing why the neoclassical framing is wrong because it either ignores it or makes mistakes about it.

econoblog 101
The Economist misrepresents MMT
Dirk Ehnts | Lecturer at Bard College Berlin

7 comments:

Andrew Anderson said...

First of all, let me point out that MMT is not a “left-wing doctrine”, as claimed by the paper. Dirk Ehnts

The Job Guarantee sure reeks of something other than necessity since the victims of our current system need/deserve an adequate income, not the waste of 40hrs/wk or so of their time to preclude them from also bidding down private sector wages. But how crude and wasteful a method that is when minimum wage laws would accomplish the same thing? And allow the victims of our current system do whatever work THEY find worth doing - if they can, given that the means of production have largely been stolen.

Not that keeping human wages high should be a priority anyway since:
1) Who would need much wage income anyway if the means of production had not been stolen from them?
2) The need for human labor is doomed anyway and high wages hasten the process.

Besides which, the root cause of so much dispossession of the population, the banking system, is not to be "reformed" to make it just but to make the current banking system more stable by making it even more unjust!

But given that MMT would increase bank privileges to near impunity while the victims of the banks would have to needlessly spend 40 hrs/wk in order to receive at least some of the restitution due them, it is too kind to call MMT policy prescriptions "Leftist". Fascist or Corporatist is much more accurate, imo.

Indeed, how is welfare for the banks and, by extension, for the rich, and wage-slavery for their victims not just a tweak to perpetuate neo-liberalism?

AXEC / E.K-H said...

Misrepresenting MMT
Comment on Dirk Ehnts on ‘The Economist misrepresents MMT’

Dirk Ehnts complains about The Economist: “I am not happy with the reporting, which includes false statements in general and also misrepresentations of what MMT is.” and then continues: “In my own book on ‘Modern Monetary Theory and European Macroeconomics’, which was published by Routledge in 2017, I discuss the balance sheet approach to macroeconomics that MMT truly is.”

On page 151 under the heading Sectoral balances one reads (Sp−I)+(T−G)+(IM−EX)=0. This sectoral balances equation is false because it lacks the most important balance of the market economy, i.e. the profit of the business sector.#1, #2, #3

The false MMT balances equation can be traced back to Keynes. Keynes NEVER understood the foundational magnitude of economics, i.e. 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.)

The correct balances equation reads (S−I)+(T−G)+(IM−EX)−(Yd−Q)=0 with Q as monetary profit and Yd as distributed profit income.

Neither Post-Keynesians nor Anti-Keynesians nor MMTers, though, have realized/rectified Keynes’ foundational blunder to this day.#4 Economists are simply too stupid for the elementary mathematics that underlies macroeconomics.

In his self-delusion, Dirk Ehnts cites John Maynard Keynes approvingly: “I give you the toast of the Royal Economic Society, of economics and economists, who are the trustees not of civilization, but of the possibility of civilization”.

This contrast with historical reality as summarized by Napoleon: “Late in life … he claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)

In their utter scientific incompetence, economists are the demolition men of civilization.#5

Egmont Kakarot-Handtke

#1 Rectification of MMT macro accounting
https://axecorg.blogspot.com/2017/09/rectification-of-mmt-macro-accounting.html

#2 Wikipedia and the promotion of economists’ idiotism (II)
https://axecorg.blogspot.com/2018/07/wikipedia-and-promotion-of-economists.html

#3 MMT and the magical profit disappearance
https://axecorg.blogspot.com/2017/08/mmt-and-magical-profit-disappearance.html

#4 Keynesians ― terminally stupid or worse?
https://axecorg.blogspot.com/2017/08/keynesians-terminally-stupid-or-worse.html

#5 Econogenics in action
https://axecorg.blogspot.com/2019/01/econogenics-in-action.html

Calgacus said...

Continuing discussion at Sig Silber — Conflation of Monetary Operations With Public Policy Options Is Confusing The Public MMT Debate

BTW, that article was worth discussing, but nobody did! I wrote a bit somewhere on it.

AA: not the waste of 40hrs/wk or so of their time to preclude them from also bidding down private sector wages.

The Job Guarantee is not a waste of a laborer's time. A JG is about doing productive work, as defined by society and the individual. Why do you claim that Job Guarantee work is "wasting time"? Based on what? Vast amounts of experience with such programs like the US WPA refutes that statement.

But how crude and wasteful a method that is when minimum wage laws would accomplish the same thing?

No, they won't. A minimum wage doesn't mean a job. Jesus understood this. A system without a JG is crude and wasteful of those who "stand idle .. because no man hath hired us." And insanely cruel to them and their families.

And allow the victims of our current system do whatever work THEY find worth doing - if they can, given that the means of production have largely been stolen.

That's what a JG is: People doing work THEY find worth doing. Your ideas are not so bad, except for their extremely unChristian opposition to a JG.

Listen to Jesus: "Call the labourers, and give them their hire, beginning from the last unto the first."

Jesus said "For the kingdom of heaven is like unto . . ." - fixed wage guaranteed employment targetted at the bottom. That is a JG.

Their isn't some magical force in a monetary economy that makes everyone have jobs, if people don't decide that everyone has jobs. And not deciding that everyone has jobs is crude, wasteful and cruel.

1) Who would need much wage income anyway if the means of production had not been stolen from them?

The existence of a monetary economy = the need for wage income. Who are you to say that the other people should be satisfied with what those at the top dole out to them? Jesus says - go to the marketplace - and then you deserve a job. Period. No exceptions. Not one person. If your system has one person who goes into the marketplace and stands idle without being hired - how can you call it Christian?

2) The need for human labor is doomed anyway and high wages hasten the process.

In other words, let the last and everyone else suffer. Your system is perfect, no matter how many people suffer, because your system is perfect. Nobody deserves a denarius a day- that is "high wages". That's what you say and that's what the banks say.

The need for human labor being doomed is IMHO and that of many others - a far-fetched dream. In any case, it is not here. It isn't "the banks" that are the ultimate cause; it is the existence of money. The JG is not a "tweak", but as Jesus and so few others understand - a direct and decisive attack at the "root cause".

Calgacus said...

Not to repeat the crime of ignoring the main post, here is a little on the Minsky article selected by Ehnts.

The idea of the "yin and yang phases", the idea of "periods in which the private economy dominates in the determination of gross profits" and those in which "public debt-financed spending takes over" is interesting, as is his periodization of 1929-47 into one period, of the second type.

I have to note that this period ended with a forgotten inflation that was worse than the 1970s; completely unnecessary, wouldn't have happened if prices were controlled say a year more. But it managed to extract about a third of the real value of the financial wealth of the 99%, then at unprecedentedly high levels due to war savings. And that median consumption levels of the 99% didn't recover their 1944 wartime peak until 1952 or 53. (Early CEA reports were worried about this.) So using "stagnation" in any way for the second type is misleading, I think.

To quote Minsky from memory elsewhere, (Stabilizing an Unstable ..) "Capitalism a good way of doing things which aren't very important." In 1929-47, people were focused on more important things, which is why capitalism wasn't the right tool to use. Maybe (intellectual?) stagnation - or not really being awake - could be better applied to the other period, of the first type, when a clear and present public purpose is not driving things.

Mere quibbles. It is of course well worth reading, more closely than I have, for its brevity and its connection to modern and older thinking.

Andrew Anderson said...

The existence of a monetary economy = the need for wage income. Calgacus

Any income will do or are the idle rich unable to access the monetary economy for lack of jobs and wage income?

So what is really needed is a Income Guarantee - a Job Guarantee but stripped of the showing up for work requirement.

But won't wages without work cause price inflation since they don't increase the supply of goods and services to match the increased demand for goods and services? But how can work that should not compete with the legitimate private sector produce the goods and services that match the increased demand by JG workers for those goods and services anyway?

But in any case, when providing jobs is the priority rather than performing needed work efficiently, arguably the JG workers might have far better things to do with their families, friends, churches and other organizations than at a JG site.

How about we talk about something everyone should agree on, ethical finance?

Calgacus said...

(1/2)

The existence of a monetary economy = the need for wage income. Calgacus

Any income will do or are the idle rich unable to access the monetary economy for lack of jobs and wage income?

No, but not everybody can be the idle rich. Also, what IS "the income"? Ultimately, it is wage labor. Gold or cowrie shells or paper has no intrinsic value. Labor does. Money is backed by labor - always has been - what else? So the need works both ways, for both the poor laborer and the rich employer.

So what is really needed is a Income Guarantee - a Job Guarantee but stripped of the showing up for work requirement.

No, that's not what is needed. It is a bad idea. It can't work. Never has, never will. Spectacularly inflationary. Doesn't real world experience count? Again, not everyone can be the idle rich. To get anything near the good effects easily provided by a JG, an income guarantee has to spend a much larger, inflationary amount. And who is requiring the "showing up for work"? Not the employer - The people waiting in the market are. Why do you want to persecute them?

But won't wages without work cause price inflation since they don't increase the supply of goods and services to match the increased demand for goods and services?

Yes.

But how can work that should not compete with the legitimate private sector produce the goods and services that match the increased demand by JG workers for those goods and services anyway?

I don't give a flying fuck about not competing with "the legitimate private sector". This is taking an inessential afterthought "not competing with the legitimate private sector" and making it an essential part of MMT & the JG. It is not. I've been saying for years that the MMTers need to give fewer details about the JG, not more. They make people miss the forest for the trees.

There might be increased demand by the JG workers for "privately" produced goods. In a modern demand-constrained economy like the US, this would be negligible. And if "private" sector employment is increased to produce them would shrink the JG and this problem you worry about.

But you are missing and denying without cause the actual work that the JG workers do. Usually, that is the sort of thing that people want a great deal, but that modern societies are starved of, for which consumer crap is a feeble replacement. That people want, but cannot get. As Minsky said "Capitalism is a good way of doing things which aren't very important" The JG would usually focus on the important things that capitalism doesn't. For instance, low cost housing built by the JG and other workers to live in themselves. And a million other things (that is how many WPA projects there were.) Basically no serious student of the WPA said that they were wasting their time. Why do you?

At a deeper level, there is no "legitimate private sector" floating in midair. Never existed. Never can exist. Thinking that the "legitimate private sector" exists is a residue of crackpot laissez-faire thinking, ultimately based on a false theory of money. You can't believe in both MMT and the existence of a "legitimate private sector".

The "legitimate private sector" is side effect of government spending, like JG spending. Or if you want, the JG workers are part of "the legitimate private sector" themselves. One of John K. Galbraith (Not Mosler's) "Innocent Frauds" is the idea that there is some magical difference between the "public sector" and the "private sector". The "legitimate private sector" gets its money from the government. So does the JG. There is no difference.

Calgacus said...

(2/2)

But in any case, when providing jobs is the priority rather than performing needed work efficiently, arguably the JG workers might have far better things to do with their families, friends, churches and other organizations than at a JG site.

They aren't contradictory priorities. One implies the other. The most efficient way to perform needed work is providing everyone with a job. Always. Efficiency ---> JG. Think about what you're saying! You're saying that fewer people working must magically get more work done. What?!!

Arguably the JG workers might have far better things to do with their families, friends, churches and other organizations than at a JG site.

That is THEIR decision. Not yours. It is insanely tyrannical and cruel to take that decision away from them. Why do you want to perform this cruel act? Who are you to tell other people that they are wasting their time when they work together? Do you think it is wise to put your understanding of morality above Jesus's?

How about we talk about something everyone should agree on, ethical finance?

Finance cannot be ethical without a JG. The JG is rather more important than bank reform. Bank reform doesn't eliminate the need for a JG. But a JG eliminates a real and pressing need for banking reform. Not that there is anything wrong with banking reform. But it's a bandaid, when the surgery of a JG is required.

I might not succeed, but I am trying to make pro-JG arguments based on very common knowledge that everyone agrees on everywhere. Could we argue about the statements (that I claim are obviously false or irrelevant) that underpin your opposition to the JG? Usually when we argue, you base your arguments on such statements (like JG workers are wasting their time) and claim you have refuted me. But maybe could you frame them as questions - and I could explain why they are false, one by one, based on common knowledge, common ground that we both share.

There is nothing wrong with your general ethics and your idea that ethics and morality are important and essential. But what I am trying to say is that there are things wrong with the unexamined assumptions and reasoning of you or any JG opponent. Fix them up, and any opponent must become a supporter.