I’ve been meaning to write about this topic for some time, but a Tweet the other day reminded me that there was still major misunderstandings of what Modern Monetary Theory (MMT) represents and that it was time to clarify some of those errors in comprehension. Specifically, there is a current out there that considers MMT to be incorrectly labelled because according to the argument there is no theory involved. It’s hard to imagine why anyone would think that but the fact that they do tells me that I should write this blog post. As I noted yesterday, our Macroeconomics textbook to be published by Macmillan Palgrave in February 2019 is full of theory. It has a lot of description, taxonomy, accounting, history, and philosophy, but also a lot of theory that ties some of those other components together in a meaningful way. The T in MMT is not a misnomer. The Tweet I saw the other day also said there was nothing new in MMT so what’s with the modern bit! I have already dealt with that issue in the past...."First they ignore you. Then they laugh at you. The they fight you. Then you win." Misattributed to M. K. Gandhi.
Bill Mitchell – billy blog
Understanding what the T in MMT involves
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
6 comments:
With all due respect, Mitchell would have more readers if he would write more concisely. The above post stretches out to 3,924 words.
Bill Black is notorious for this. In verbal interviews, Black is direct and concise. In writing, Black uses endless paragraphs to make each simple point. Therefore, hardly anyone reads him.
Anyway, most people do not understand the difference between
[1] A guess or hypothesis
[2] An opinion
[3] A theory
A theory is a mathematically provable, testable, falsifiable, practical, and workable model based on a nexus of established facts.
For example, the theory of aerodynamics allows us to build aircraft that fly. The theory of thermodynamics allows us to manage heat. The theory of relativity allows us to make accurate predictions involving celestial mechanics.
None of these are guesses or mere opinions.
Likewise, the basics of MMT are not guesses or mere opinions.
MMT = Modern Monetary Trash
Comment on Bill Mitchell on ‘Understanding what the T in MMT involves’
In his latest post#1, Bill Mitchell says: “… a Tweet the other day reminded me that there was still major misunderstandings of what Modern Monetary Theory (MMT) represents and that it was time to clarify some of those errors in comprehension. Specifically, there is a current out there that considers MMT to be incorrectly labelled because according to the argument there is no theory involved. It’s hard to imagine why anyone would think that but the fact that they do tells me that I should write this blog post. As I noted yesterday, our Macroeconomics textbook to be published by Macmillan Palgrave in February 2019 is full of theory. It has a lot of description, taxonomy, accounting, history, and philosophy, but also a lot of theory that ties some of those other components together in a meaningful way. The T in MMT is not a misnomer.”
Then he goes on to specify what a theory is and how scientific methodology relates to MMT. The first lethal error/blunder of Bill Mitchell is to maintain that economics is a social science. Here, MMT is in full accordance with mainstream economics. The fact of the matter is, though, that economics is a system science.#2
The second methodological error/blunder is that “There are no ‘laws’ in economics as their are in physics, for example.” This is true only insofar as there are NO behavioral laws. This, however, is irrelevant because economics is a system science and there are systemic laws of the monetary economy. Systemic laws are invariances (Nozick’s term) like physical laws but do not entail the physicists’ notion of causality.
The third methodological error/blunder consists of abandoning the concept of scientific truth which is well-defined since 2000+ years by material and formal consistency and to replace it by congruency.
All this is in line with J. S. Mill’s attempt to establish economics as “separate and inexact science” which, however, has never been anything else but a euphemism for failed/fake science.
Since the founding fathers, economics is a cargo cult science (Feynman’s term) and Bill Mitchell is in the state of self-delusion by maintaining he and his MMT colleagues are “standing on the shoulders of giants”.#3
Fact is that economists do not get the foundational concepts of profit/income/saving straight to this day. MMTers are NO exception.#4
Bill Mitchell argues: “An oft-stated claim is that MMT is about accounting relationships. … Those who make that spurious claim about MMT often use the sectoral balances framework to make their point. They note that the basic sectoral balances relationship, which is a core part of the way an MMT economist analyses the world, is, at heart an accounting truism that has to be true because it is derived from a larger accounting framework – the nation’s National Accounts. That is true so far. While I know there is a debate in accounting about the theory of accounting, we will accept, here, that an accounting truism is one that has to be true (add up in this case) by the way we define it. It is not opinion or conjecture – it just has to be. So the statement: the Government deficit (surplus) equals the Non-government surplus (deficit) dollar-for-dollar is such a truism. It must be true.”
Unfortunately, it is false.#5 As Schumpeter once put it: “There is no more fertile source of error than apparently trivial premises.” Economics is no exception: “In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” (Georgescu-Roegen)
See Part 2
Part 2
Because the sectoral balances equation is false, the whole analytical superstructure is false. And because of this, MMT policy guidance has NO sound scientific foundations. Worse, MMT is a political fraud, it claims to promote the cause of WeThePeople but in fact, promotes the cause of WeTheOligarchy. The proof is in the accounting truism Public Deficit = Private Profit which follows from the axiomatically correct balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
Just like mainstream economics, MMT is cargo cult science. The difference is that mainstream economics is built upon false microfoundations and MMT is built upon false macrofoundations. MMT is proto-scientific trash and ― to use Stephanie Kelton’s words ― “one of the greatest cons ever perpetrated on the American people.”#6
Egmont Kakarot-Handtke
#1 Bill Mitchell, Understanding what the T in MMT involves
http://bilbo.economicoutlook.net/blog/?p=40383
#2 For details see cross-references NOT a Science of Behavior
https://axecorg.blogspot.com/2015/12/behavior-cross-references.html
#3 Economists: Standing on the Shoulders of Gnomes
https://axecorg.blogspot.com/2018/04/economists-standing-on-shoulders-of.html
#4 MMT and the single most stupid physicist
https://axecorg.blogspot.com/2018/09/mmt-and-single-most-stupid-physicist.html
#5 Rectification of MMT macro accounting
https://axecorg.blogspot.com/2017/09/rectification-of-mmt-macro-accounting.html
#6 Smart! How to make people fund their brain-washing
https://axecorg.blogspot.com/2018/09/smart-how-to-make-people-fund-their.html
Here is a precise measurement of the quantity of meaning in my gibberish…
(I−S)+(G−T)+(X−M)−(Q−Yd) = 0.
“A theory is a mathematically provable, testable, falsifiable, practical, and workable model based on a nexus of established facts.“
There are other less narrow and formally recognized definitions... which I think is Bills point...
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