This is the second part of my response to an article published by the German-language service Makroskop (March 20, 2018) – Modern Monetary Theory: Einwände eines wohlwollenden Zweiflers (Modern Monetary Theory – Questions from a Friendly Critic) – and written by Martin Höpner, who is a political scientist associated with the Max-Planck-Institut für Gesellschaftsforschung (Max Planck Institute for Social Research – MPIfG) in Cologne. In this part we discuss bond yields and bond issuance. I had originally planned a two-part series but the issues are detailed and to keep each post at a manageable length, I have opted to spread the response over three separate posts. In Part 3 (next week) we will discuss inflation and round up the evaluation of his input to the debate....Bill Mitchell – billy blog
My response to a German critic of MMT – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
MMT is dead: An unfriendly critique of Bill Mitchell
ReplyDeleteComment on Bill Mitchell on ‘My response to a German critic of MMT ― Part 2’
Bill Mitchell argues: “The point is that by, initially focusing on and emphasising the intrinsic characteristics of the monetary system, and no other body of work does that, MMT strips way the veil of neo-liberal ideology that mainstream macroeconomists use to restrict government policies. We learn that these constraints are purely voluntary and have no intrinsic status. … MMT thus broadens the understanding of the policy possibilities for those who come into contact with it. It is a body of work that enhances our democracies.”
The task of economics, understood as science, is NOT to enhance our democracies but to enhance our knowledge about how the actual economy works. Economics, though, has lost its scientific mission already with Adam Smith. The Classicals were political agenda pushers and made no secret out of it. To recall, economics started as Political Economy. Economics always tried to become a science but never succeeded because the agenda pushers prevailed. The point when economics began to deceive the general public can be exactly located, it was when the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” was invented.
Bill Mitchell is right with his critique of orthodox economics. And he easily refutes the friendly critique of the political scientist Martin Höpner. Note, first of all, that political science is a euphemism for agenda-pushing in the garb of science. Note, secondly, that genuine scientists keep science and politics strictly apart. Note, thirdly, that politics is the natural habitat of morons. Note finally that science never improves politics but politics always corrupts science.
The political scientist Martin Höpner misses the essence of MMT. MMT is not flawed with regard to the issue of the exchange rates, bond yields, monetary/fiscal policy, or inflation but with regard to the issue of distribution.
MMTers got macro badly wrong. To make matters short, the axiomatically correct relationships are given here without further explanation.#1 It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:
(i) Qm=−Sm in the elementary production-consumption economy,
(ii) Qm=I−Sm in the elementary investment economy,
(iii) Qm=(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm=Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.
From (iv) follows immediately that the foundational MMT balances equation (X−M)+(G−T)+(I−S)=0 is false. Because of this, the whole analytical superstructure of MMT is scientifically worthless.
From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit. Exactly at this point, Bill Mitchell’s error/fraud happens. He argued elsewhere: “The government deficit is exactly the non-government savings.” No! The mirror image of the government’ deficit is the business sector’s profit.
Public deficit spending, the cure-all of MMT, has been the profit machine of the market economy throughout history.#2 The main effect of MMT policy is on the distribution of income and financial wealth and it is absolutely detrimental to the interests of the ninety-nine-percenters. Clearly, MMT does NOT advance democracy but oligarchy.
Stripped down to the essentials, MMT is a political fraud. And this is what the friendly but stupid political scientist Martin Höpner missed entirely.
Egmont Kakarot-Handtke
#1 Macro for retarded economists
https://axecorg.blogspot.de/2018/01/macro-for-retarded-economists.html
#2 Keynes, Lerner, MMT, Trump and exploding profit
http://axecorg.blogspot.de/2017/12/keynes-lerner-mmt-trump-and-exploding.html