Thursday, March 14, 2019

Bill Mitchell — Travelling across the world today to escape the famine that MMT will cause

For now a brief excursion into the Dutch press, which has decided to join the wannabees attacking Modern Monetary Theory (MMT). The scenario outlined in the article I read earlier today takes the criticisms to a new level. We are no longer worried about hyperinflation, crowding out, sky high interest rates. No, things are likely to get much worse than that. If any government takes on MMT (noting it is not a regime that can be taken on) to operationalise a Green New Deal then tax rates will have to rise to around 100 per cent, households and firms will stop working and producing, and a massive famine in possible where millions die. Sort of Project Fear stuff that has marked the Remain position in the Brexit debate!
Just when you thought it couldn't get any more ridiculous. TPTB becoming unhinged over MMT?

Bill Mitchell – billy blog
Travelling across the world today to escape the famine that MMT will cause
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity
(CofFEE), at University of Newcastle, NSW, Australia

See also
My guess is that every prominent economist that wants to mouth off about Modern Monetary Theory (MMT) has already said their piece, and the arguments that swamped my Twitter feed may finally go back to their earlier levels. It is abundantly clear that the prominent New Keynesians who attacked MMT want it to disappear, but that seems unlikely (although I am obviously biased in that assessment). From the perspective of the history of economic theory, the neoclassical reaction was following past form, and we can expect the same patterns in the future.
Bond Economics
What Did We Learn From The MMT Maelstrom?
Brian Romanchuk

14 comments:

AXEC / E.K-H said...

Refuting MMT’s new Macroeconomics Textbook
Comment on William Mitchell on ‘Macroeconomics ― MMT Textbook’*

MMT is, of course, accurate as far as the refutation of Orthodoxy/Neoclassics is concerned. Standard economics is scientifically indefensible. There is no need for further discussions about the current state of economics. This is where we stand today: provably false
• profit theory, for 200+ years,
• microfoundations, for 140+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

However, the critique of Orthodoxy has run its course: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

MMT claims to be the new theory that beats Orthodoxy. This is accurate with regard to the shift from microfoundations to macrofoundations. Microfounded approaches are dead already since Walras/Jevons/Menger. The problem is that economists in their incurable scientific incompetence messed up the indispensable paradigm shift from microfoundations to macrofoundations.

MMT is NO exception. And the proof is in the new MMT Textbook, more specifically in the premises of MMT. It holds what Keynes observed with regard to Orthodoxy: “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.”

The premises of MMT Macroeconomics are laid out on pp. 13-16 and pp. 83-86.

“By placing government, as the currency issuer, at the centre of the monetary system, the MMT approach immediately focuses on how a government spends, and how this spending influences … macroeconomic aggregates …” (p. 13)

This is methodologically false. Macroeconomics starts with what Keynes called the ‘monetary theory of production’. The most elementary economy consists of the household sector, the business sector, and the central bank. Government and foreign trade are included at a later stage. For the central bank holds that it “can never run out of its own currency.”

“One of the most basic propositions in macroeconomics that MMT emphasizes is is the notion that at the aggregate level, total spending equals total income and total output.” (p. 14)

Unfortunately, the most basic proposition in macroeconomics is false since Keynes, and MMTers have not realized it until this day.

Here is the short proof that economists in general and MMTers, in particular, get the elementary mathematics that underlies macroeconomics wrong.

(i) The elementary production-consumption economy is given by three macroeconomic axioms: (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.

(ii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.

(iii) The monetary profit of the business sector is defined as Q≡C−Yw,

(iv) The monetary saving of the household sector is defined as S≡Yw−C.

(v) Ergo Q+S=0 or Q=−S.

The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving (-S) is business sector profit Q. Both Q and S are measurable with the precision of two decimal places.

See part 2

AXEC / E.K-H said...

Part 2

For the elementary investment economy holds Q=I−S.

For the elementary investment economy plus government holds Q=(I−S)+(G−T). If I and S are taken out of the picture for a moment, one gets Public Deficit = Private Profit.

In sum: (1) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (2) distributed profit Yd is income and adds up with wage income Yw to total income, (3) total income is NEVER equal to total spending, (4) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (5) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, i.e Q=−S, (6) saving and investment are causally INDEPENDENT and NEVER equal, (7) all I=S/IS-LM models are false since Keynes/Hicks, (8) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (9) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (10) because profit is false, the whole of MMT is false, (11) because the theory is false, MMT policy guidance has no sound scientific foundations.#1

MMT theory is provably false, MMT policy serves the Oligarchy. Since Samuelson started the textbook industry in 1948, economists have produced NOT ONE textbook that satisfies scientific standards.#2 Since generations, economics students swallow proto-scientific garbage without batting an eyelid. Not very smart, these folks.#3

Egmont Kakarot-Handtke

* Macroeconomics
https://www.macmillanihe.com/companion/Mitchell-Macroeconomics/

#1 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

#2 The father of modern economics and his imbecile kids
http://axecorg.blogspot.com/2016/11/the-father-of-modern-economics-and-his.html

#3 There is NO such thing as “smart, honest, honorable economists”
https://axecorg.blogspot.com/2019/01/there-is-no-such-thing-as-smart-honest.html

Konrad said...

Q=(I−S)+(G−T) (-b±√(b^2-4ac))/2a x_(y^2 )(I−S)+(G−T)+(X−M)=0

Konrad said...

“My guess is that every prominent economist that wants to mouth off about MMT has already said their piece…” ~ Brian Romanchuk

Opponents of MMT bungled their mission by stating MMT’s basic precepts.

Example…

“MMT says that a government with monetary sovereignty can always pay its obligations by printing more money.”

(Trump himself said this while campaigning in 2016.)

The above assertion strikes average people as perfectly logical. There is no way to refute it except for “Zimbabwe!”

Put another way, the more MMT is attacked, the more MMT makes sense to average people.

Therefore MMT’s opponents are now resorting to group-think.

Q. Is MMT correct?

A. Most economists say no.

Q. What do you say?

A. Most economists say no.

Q. But what do you say?

A. Most economists say no.

Q. Why?

A. They're experts.

The article below claims that a survey at the Univ. of Chicago Booth School of Business (birthplace of neoliberalism) says that not a single respondent agrees with MMT. Since they disagree with MMT, the article calls them "top economists."

“A new survey shows that ZERO TOP US ECONOMISTS agree with the basic principles of MMT supported by Alexandria Ocasio-Cortez.”

https://www.thisisinsider.com/economist-survey-alexandria-ocasio-cortez-modern-monetary-theory-2019-3

See? Group-think.

"Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt."

Of the 42 survey respondents, 15 disagreed, and 22 strongly disagreed. That’s 88% of the 42 total. Presumably the remaining 12% agreed with MMT. (How they became “zero” is not explained.)

“Countries that borrow in their own currency can finance as much real government spending as they want by creating money."

Eleven respondents disagreed with this, and twenty-four strongly disagreed. That’s 35 out of 42 total. How those 35 magically became 42 is not explained.

None of these “top economists” explain why they disagree with MMT. Like most propaganda, this is about group-think, not logic.

Another tactic used by liars is to simply go silent. Remember the buzz about the “trillion-dollar coin”? It started in 2011 and became headlines in 2013, at which point the Treasury and the Fed rejected it, and the corporate media outlets ceased all mention of it. Crisis over.

They will try to do the same with MMT, but MMT is like the “yellow jackets” protesters in France, who are motivated not by ideology, but by hunger and desperation. They are not going away, and neither is MMT.

Alexandria Ocasio-Cortez and her followers are largely responsible for getting MMT into mainstream discussion. That and the growing public call for Universal Medicare. Therefore, only two months into AOC’s first term, neoliberal Democrats are looking for someone to run against AOC in 2020.

Likewise, Jews are desperately looking for someone they can run against Rep. Ilhan Omar in 2020. They want a person of color who is ambitious but has mental problems, e.g. Minneapolis City Councilwoman Andrea Jenkins, the first openly transgender African-American “woman” elected to public office in the USA.

Konrad said...

“We are no longer worried about hyperinflation, crowding out, sky high interest rates…Tax rates will have to rise to around 100 per cent, households and firms will stop working and producing, and a massive famine is possible where millions die.” ~ Bill Mitchell

“We are talking about a disaster of Biblical proportions.”

“What do you mean Biblical?”

“What he means, Mister Mayor, is real wrath of God-type stuff. Fire and brimstone coming down from the sky. Rivers and seas boiling over. Forty years of darkness. Earthquakes. Volcanoes. The dead rising from the grave. Human sacrifice, dogs and cats living together; MASS HYSTERIA!”

https://www.youtube.com/watch?v=SA1SxZoFmOU

S400 said...

“See part 2”

Didn’t see part 1 and skipped part 2. Is there a part 3?

Ryan Harris said...

If a rise in the dollar destabilized the world and tightened credit, then I wonder if a 40 or 50% "collapse" of the dollar exchange rate driven by MMT causes chaos too?

Calgacus said...

Ryan -

1) Foreign exchange rates go up and go down. Why care? Their importance is wildly exaggerated, especially for the USA. It is an UnAmerican activity to worry about this nothingburger. It is polluting the body fluids of American youth to indoctrinate them to self-abuse their own society and economy for the purposeless purpose of rigid exchange rates.

The American attitude: The dollar is our currency and your problem [if you want to make it one] h/t John Connally.
The rest of the world could do with this kind of Americanization. Which is self-respect. People respect people who respect themselves.

2) There is no reason to believe that basic MMT measures - which are generally deflationary - zero or low interest, job guarantee - along with other deflationary Good Things like Medicare-for-All would collapse the dollar - instead of the reverse. Anti-MMT arguments rely on underpants gnome logic: Farfetched ideas that exchange rates matter to the USA and that they would go down rather than up.

I mean - Should we wonder if an antimatter asteroid attracted to the earth by MMT will - Kill Us All!!! I think I and a lot of others here like Mike Norman would like to be on the other side of an fx trade with anybody who thinks "adopting MMT" would make the sky or the dollar fall.

Ryan Harris said...

Hi Calg,

I use MMT as a tool for work/business and mostly stay out of it as a political tool to push progressiveness because I think MMT is a pretty badly flawed model, but still useful to understanding short to medium term impacts of fiscal policy and sectoral balances.

For example, the USD pricing of farm commodities is causing a spate of bankruptcies for US farmers while Russian and South American farmers are minting money given the strong USD. Why care? It matters if you need to understand how commodity cycles work, how foreign exchange trends, how bank lending and profits will be affected. Understanding how the reverse will impact global trends is also important for real considerations.

In MMT political speak Banksters were irresponsibly lending to contributors of global warming and this is why we should prosecute banksters and cautiously be a little bit smug about farmers plight with quiet suggestions they could join a JG program to improve their employability following their much deserved failure. I do read MNE and the politcal jargon and know the MMT bar room banter framing and find it pretty funny but I can't tell if people really take it serious or just like to rant and rave for effect.

S400 said...

So Ryan this last post of yours wasn’t rant? Please... it’s the same old right winger self righteous bullshit again.

S400 said...

“For example, the USD pricing of farm commodities is causing a spate of bankruptcies for US farmers while Russian and South American farmers are minting money given the strong USD. “

That is under a strong USD. If the USD would drop by 50-60 percent that would be good for US farmers compared to South American or Russian farmers all else equal.

Calgacus said...

Right, S400. Very often criticism of MMT makes (implicit or explicit) contradictory assumptions. Wray calls this style "moving targets" or "whack-a-mole". To make those counter-arguments work, fx values have to simultaneously go up and down, you have to convince yourself that deflation is inflationary etc.

MMT is not "a model", but a theory, and economists use the word "model" in odd ways which I don't fully grasp and which are often the opposite of the classical usage from mathematics and logic (and art). The theory is little more than doing accounting and speaking economic English correctly and consistently and trying to describe common sense reality. Not doing things like changing your definitions in the middle of an argument or never making them at all.

Ryan: In MMT political speak Banksters were irresponsibly lending to contributors of global warming and this is why we should prosecute banksters and cautiously be a little bit smug about farmers plight with quiet suggestions they could join a JG program to improve their employability following their much deserved failure.

Blaming anyone including farmers (Wray is a country boy, y'know) for their unemployment is the complete and utter opposite of MMT: Unemployment is always and everywhere a dirty, rotten decision of the state. Anybody who has ever lived in a rural community knows that most non-Agribusiness small farmers have another job. It can be hard to tell which is the sideline.

We were considering the consequences of MMT recommendations. If there were a JG, there would be zero unemployment of farmers and anyone else. If the dollar were strong, that might just mean that the farmers' other job would be less of a sideline, and that their dollars might go a little farther. If it were weak, as S400 notes the farm would prosper and it would be the farmers' main job; they could safely quit their other one, which might be a JG.

Nothing to worry about in either case. That is one of the great merits - MMT policy would be a great economic boost to heartland rural communities suffering under the crazy bicoastal obsession of the plutocracy - so it would revive a part of the winning New Deal coalition & capture tons of votes.

Ryan Harris said...

Exactly. That's just agriculture. Far and wide impacts. If you understand the impacts, the money is easy and the politics predictable.

Noah Way said...

Ryan reminds me of that old expression "can't see the forest for the tress".