Tuesday, January 31, 2017

Steven Hall — Explainer: what is modern monetary theory?

Good MMT "elevator speech."

The Conversation
Explainer: what is modern monetary theory?
Steven Hall | Lecturer in Economics, University of Adelaide


Andrew Anderson said...
This comment has been removed by the author.
Andrew Anderson said...

One would think the MMT folks, in order to maximize the fiscal space for the monetary sovereign, would wish to DE-PRIVILEGE* the banks and other depository institutions. Unless their intent is to save the banks from themselves and not us from the banks?

*E.g. Why may only depository institutions have inhenrently risk-free accounts at the central bank while the non-bank private sector must work through them or be limited to cash transactions or barter? Hmmm?

peterc said...

Steven did a characteristically excellent job with this piece. It is also timely for the Australian audience as a response to the recent misleading critique by the Uni of NSW prof in the same publication.

AXEC / E.K-H said...

Why Bernie Sanders is unintentionally a godsend for the one-percenters
Comment on Steven Hall on ‘Explainer: what is modern monetary theory?’

A false theory is never 100 percent false but the falsehood or half-truth is sandwiched between two trivialities or common sense truths to which everybody can readily agree. So most of MMT is trivially true except this proposition: “3) The government’s financial deficit is everybody else’s financial surplus.”

The half-truth is hidden in the two words “everybody else’s”. These words have to be replaced by “one-percenters”. So proposition 3 reads correctly: “The government’s financial deficit is the one-percenters monetary profit.”*

So, what MMT policy in effect produces is the insanely biased income distribution everybody complains about ― Bernie Sanders in the first place.

How can it happen that well-meaning economists send their favorite politician with counter-productive policy advice against the wall? The short answer is that economists do not know what profit is. If this sounds incredible look up the Palgrave Dictionary: “A satisfactory theory of profits is still elusive.” (Dessai, 2008).

MMT goes back to Keynes who had NO idea what profit is: “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.)

Neither Post Keynesians nor Anti-Keynesians nor MMTers detected or rectified Keynes’s foundational mistake/error/blunder in the past 80 years. So, since 200+ years economists have NO idea of the foundational concepts of their subject matter, that is, of profit and income.

Because of this, economists’s policy advice in general is ruinous as already Napoleon knew: “Late in life, moreover, 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.”

Egmont Kakarot-Handtke

* The correct formula is given with Qm+Sm+(T-G)=0 (if I=0) which condenses to Qm=G-T, i.e. monetary profit Qm is equal to government spending minus taxes. For details see ‘Wikipedia and the promotion of economists’ idiotism’

NeilW said...

"The correct formula is given with Qm+Sm+(T-G)=0 (if I=0) which condenses to Qm=G-T, i.e. monetary profit Qm is equal to government spending minus taxes."

It clearly isn't.

I am a benefits recipient. I receive £72 in cash every week from the government, and I keep £10 of that cash in my cash box for a rainy day and spend the rest.

The £62 is spent throughout the economy and nobody else saves it so it all ends up as taxation. Government spends nothing else.

Clearly the government deficit is entirely due to my saving the £10 in my box for a rainy day. Nothing at all to do with profit, which is generated and fully spent elsewhere in this toy economy via the spending injection - all of which generates real production.

So you haven't a clue what profit is either. It's really just the wages of capitalists. Much as interest is the wages of bankers. When you see it as just different forms of wages to different types of people it all works out neatly as a mental picture.

You'll not get anywhere using static mathematical techniques. That is precisely what has lead normal economists, and quite a few physicists, into complete dead ends.

Not that a ranty crank will listen to any of this. So this note is really for others to show why the crank is cranky.

AXEC / E.K-H said...

Neil Wilson

I clearly stated: “The correct formula is given with Qm+Sm+(T-G)=0 (if I=0) which condenses to Qm=G-T, i.e. monetary profit Qm is equal to government spending minus taxes.”

So, monetary profit Qm is equal to the government deficit in the SIMPLIFIED case Sm=0 and I=0. In the COMPLETE profit formula appear IN ADDITION distributed profit and the foreign trade balance. All these issues have been dealt with elsewhere#1 and left aside in the 2263 character post in order to FOCUS on the main point.

It is trivially true that Sm is normally different from zero. Accordingly, this case has already been dealt with elsewhere.#2 So you are not telling anything new but are simply poorly informed.

You say: “So you haven’t a clue what profit is either. It’s really just the wages of capitalists.”

If you were better informed you would know that the commonsensical formula total income = wages + profits is the worst blunder of all of economics.#3 More, this formula is the VERY SIGNATURE of the utter scientific incompetence and confusion of the representative economist.#4

Egmont Kakarot-Handtke

#1 See the working papers on SSRN
#2 See ‘How the intelligent non-economist can refute every economist hands down’
#3 See ‘Essentials of Constructive Heterodoxy: Profit’
#4 See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist’