Tuesday, September 11, 2018

Bill Mitchell — The divide between mainstream macro and MMT is irreconcilable – Part 2

This is Part 2 of a three-part response to an iNET article (September 6, 2018) – Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?. In Part 1, I considered what we might take to the core body of mainstream macroeconomics and used the best-selling textbook from Gregory Mankiw as the representation. The material in that textbook is presented to students around the world as the current state of mainstream economic theory. While professional papers and policy papers might express the concepts more technically (formally), it is hard to claim that Mankiw’s representation is not representative of what current mainstream macroeconomics is about. Part 1 showed that there is little correspondence between the core propositions represented by Modern Monetary Theory (MMT) and the mainstream. Yet, the iNET authors want to claim that the differences between the two approaches to macroeconomics only really come down to a difference in “assignment of policy instruments” – jargon for MMT prefers fiscal policy while the mainstream prefers monetary policy as the primary counter-stabilising tool. Given the lack of conceptual and theoretical correspondence demonstrated in Part 1, it would seem surprising that there is really only just this difference in policy preference dividing MMT from the mainstream. If that was the case, then what is all the fuss about? Clearly, I consider the iNET article presents a sleight of hand and that the differences are, in fact, significant. So, in Part 2, I am tracing how the iNET authors came to their conclusion and what I think is problematic about it. This discussion will spill over into Part 3....
Bill Mitchell – billy blog
The divide between mainstream macro and MMT is irreconcilable – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

1 comment:

AXEC / E.K-H said...

Forget mainstream economics, scrap MMT, move on to the new paradigm
Comment on Bill Mitchell on ‘The divide between mainstream macro and MMT is irreconcilable ― Part 2’

Stop beating mainstream economics ― it is long dead.#1 Bill Mitchell, though, does not get tired of enumerating, again and again, the flaws and idiocies of DSGE/RBC/New Keynesianism.

This is Bill Mitchell’s Groundhog Day indictment:#2

• “The problem is that their conclusion is flawed at the most elemental level …”

• “And so, mass unemployment was seen to be a problem of minimum wages, excessive trade union power, other legal constraints on wage cuts etc.”

• “New Keynesian specifications have to be overly simplistic and reliant on behavioural assumptions … that no self-respecting social scientist that actually studies human behaviour would consider to be credible in the least.” [“No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)]

• “The mainstream proponents want to claim virtue based on the fact that their models are rigourous… but then respond to empirical anomalies with ad hoc (non rigourous) tack ons.”

• “The results they end up producing … are not ‘derivable’ from first-order, microfounded principles at all. Their claim to theoretical rigour fails.”

Yes, mainstream economics is a ludicrous, proto-scientific exercise. The axioms are false, the analytical superstructure is false, and from this follows that economic policy guidance NEVER had sound scientific foundations. Mainstream economics is refuted on all counts and therefore scientifically indefensible. Who still defends it is stupid or corrupt or both.

More is not to say about the failed/fake science economics.#3 And now the real task begins: “The moral of the story is simply this: 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)

Is MMT the new theory? No, because MMT, too, is axiomatically false.#4 Because of this, MMT policy guidance, too, has no sound scientific foundations.#5, #6

Egmont Kakarot-Handtke

#1 Stop beating mainstream economics ― it is long dead

#2 Reference to Arjun Jayadev/J. W. Mason ‘Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?’

#3 The biggest scientific mistake of the last centuries, and it has much to do with academic economists

#4 Both, mainstream economics and MMT are axiomatically false

#5 For the full-spectrum refutation of MMT see cross-references MMT

#6 From false micro to true macro: the new economic paradigm