Thursday, December 13, 2018

Bill Mitchell — When two original MMT developers get together to discuss their work

Last week, Warren Mosler and I had one of our regular catchups and we discussed at length the state of play in Modern Monetary Theory (MMT). We are quite protective of it. We mused about how we started out on this Project and where it has gone. As old stagers do when they get together. We also reflected and compared notes on what the state of MMT is now, given the increasing visibility of the ideas in the mainstream media all around the world and the proliferation of social media activists who have chosen to identify and promote our ideas. There were aspects of that development that we identified as being of concern for us and other aspects which we considered to be a cause for optimism (celebration is too strong a word). We thought it would be a good idea to take a breath and document what we considered to be the essence of MMT – as a sort of checklist for people who want a fairly precise account of the body of work. I agreed to write this document after input from Warren. So, this is what we mean by MMT. What follows is my account of our conversation expanded to add meaning where required.…
Probably as close to an MMT manifesto as we'll get.

Bill Mitchell – billy blog
When two original MMT developers get together to discuss their work
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

12 comments:

AXEC / E.K-H said...

MMT: The fusion of Wall Street and Academia
Comment on Bill Mitchell on ‘When two original MMT developers get together to discuss their work’

Bill Mitchell summarizes: “Last week, Warren Mosler and I had one of our regular catchups and we discussed at length the state of play in Modern Monetary Theory (MMT). We are quite protective of it. We mused about how we started out on this Project and where it has gone. As old stagers do when they get together. We also reflected and compared notes on what the state of MMT is now, given the increasing visibility of the ideas in the mainstream media all around the world and the proliferation of social media activists who have chosen to identify and promote our ideas. There were aspects of that development that we identified as being of concern for us and other aspects which we considered to be a cause for optimism (celebration is too strong a word).”

In other words, the two MMT chief propagandists congratulated themselves and laid down the 2019 communication strategy for the foot-soldiers a.k.a social media activists “who have chosen to identify and promote our ideas”. Unfortunately, these activists a.k.a trolls/operatives/shills/salespeople, impair the reputation of MMT because they “use the term MMT as a slogan rather than relating to it as a coherent and body of academic work in economic theory and practice that has been meticulously developed over more than 25 years.”

In order to restore reputation and credibility and to raise the low standards of social media communication,#1, #2 Bill Mitchell took it upon him to lay down the joint list of essential talking points of MMT propaganda.

What appears to be a bit strange at first glance is that Bill Mitchell and Warren Mosler do not address once the lethal critique of MMT, that is, that MMT’s policy of deficit-spending/money-creation is nothing but a free lunch for the Oligarchy. The word profit does not appear at all in the whole article. As the old quip says: Economics without profit is like Hamlet without the Prince of Denmark.

So, Bill Mitchell’s (Academia) and Warren Mosler’s (Wall Street) joint propaganda directive talks about everything between heaven and earth except MMT’s real political agenda, that is, money making for the Oligarchy.#3 Obviously, it is intended as a user manual for disinformation and political fraud.

Accordingly, the basic principles of MMT, as laid down by the Oligarchy’s spokespersons do not deal with how the monetary economy works but how the state works.

Basic Principle 1: “The state, from inception, as the sole supplier of the funds needed to pay taxes or buy the debt issued by the state, must necessarily impose tax liabilities on the non-government sector before it can spend.”

This is NOT correct. A monetary economy with zero taxes is a real possibility.#4, #5, #6 So, the whole MMT “money story” breaks down already in the first sentence.

There is no need to waste time with the rest of the story.#7

MMT is simply poor science. “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum) MMTers do NOT have the true theory.

See part 2

AXEC / E.K-H said...

Part 2 somehow got lost.

For the full text see
https://axecorg.blogspot.com/2018/12/mmt-fusion-of-wall-street-and-academia.html

S400 said...

“Part 2 somehow got lost.”

Good. Now you get lost.

Clint Ballinger said...

Lol – I tried to see if there as anything of interest in AXEC despite his, err, demeanor. Anyway, I finally hit on the right question, asking about the role of taxes in his model. This led to the essence of his idea in a post I had never seen. Anyway, makes clear how fundamentally silly/simple his argument is.
____________
His blog post “answer” is titled “The Third Way: Towards the Happy Zero-Tax Economy” (https://axecorg.blogspot.com/2018/06/the-third-way-towards-happy-zero-tax.html)

“Because the greatest misfortune in the life of most people is that they feel to be unjustly forced to pay taxes, it can be safely assumed that human happiness increases enormously with the abolition of taxes..”

but of course “money that has been created out of nothing has to be destroyed eventually.”

“All that has to be done is to distribute the full amount of monetary profit” to his “legitimate sovereign” (whatever that is). "Because the Legitimate Sovereign owns all corporations of the business sector, this is an easy task." (I am not worried about some public ownership, only the simple-mindedness here).

And this is easy because “All that is needed to make things happen is a well-informed Legitimate Sovereign”

Well, of course.

Anyway, can quit wasting my time now at least. Glad I asked the tax question
__________________

Joe said...

Imo, Principle 3 should be principle 1, as the sectoral balances is the most important economic principle, by far. It's the basis of every single economic transaction, monetary or barter, ever done. I gained what you lost and you gained what I lost. We may decide we're both better off but nevertheless the zero-sum nature of it remains. This principle alone rules out much of mainstream economic thought, especially in the European continental context. Everyone can't be in surplus simultaneously.

Principle 1 obviously ties right into principle 3 and principle 6. These provide a sort of "escape hatch" to the zero-sum nature of monetary transactions. People like earning more than they save. It's only possible for the non-govt to net save if the govt runs a deficit, which isn't necessarily unsustainable. If you understand that, you're already well ahead of every tv commentator, politician, or most economists for that matter, pretty much anywhere.

The JG is nice, but it's not strictly necessary to an analytical economic framework. I agree that full-employment is a worthy goal, but not everyone would agree. Some people really are fine living in their walled compound with people starving in the streets. But that doesn't change the zero-sum nature of economic transactions, or the fact that the state must create currency before it can collect taxes in that currency or that the state can't ever run out of currency. The statement “The goal is to generate full employment.” is a political one, not an economic one. Principles of the sectoral balances, money and credit creation, taxation etc, are not subject to political views, they're true regardless, merely a description of how things actually work.

Might I suggest an additional principle, about the credit creation process, ie that it's new spending and not a transfer of money from saver to borrow, ie no loanable funds. The initial spending of the deposit created by extending credit to a borrow, is the borrower spending more than they earn, but at some point in the future, said person must net save to pay it back, all the while running into the sectoral balances principle, as was clear in the immediate post-GFC period. The state faces no such future constraint requiring them to net save.

AXEC / E.K-H said...

Joe

You say: “Imo, Principle 3 should be principle 1, as the sectoral balances is the most important economic principle, by far. It’s the basis of every single economic transaction, monetary or barter, ever done. I gained what you lost and you gained what I lost. We may decide we’re both better off but nevertheless the zero-sum nature of it remains. This principle alone rules out much of mainstream economic thought, especially in the European continental context. Everyone can’t be in surplus simultaneously.”

Mathematically true: Everyone can’t be in surplus simultaneously.

MMTers, though, got the math wrong. The blunder is exactly located in this assertion: “In accounting terms, the government’s deficit (surplus) is exactly equal at all times the non-government sector’s surplus (deficit).”

The correct 3-sector relation reads (G−T)=Qm+Sm,#1 i.e. the government’s deficit (surplus) is exactly equal at all times to the SUM of the business sector’s surplus (deficit) and the household sector’s surplus (deficit).

The business sector’s surplus Qm is called profit and the household sector’s surplus Sm is called saving. The business sector’s deficit is called loss and the household sector’s deficit is called dissaving. All combinations of business sector’s profit/loss and household sector’s saving/dissaving that are equal to (G−T) are possible.

The blunder of Principle 3 invalidates the WHOLE of MMT. The storytellers Bill Mitchell and Warren Mosler are too stupid for the elementary mathematics that underlies macroeconomic accounting.#2 Needless to emphasize that the “social media activists who have chosen to identify and promote” their ideas understand even less. They are brain-dead agenda pushers as the posts of S400 and Clint Ballinger clearly demonstrate.

Egmont Kakarot-Handtke

#1 Causally speaking it reads Qm⇐(G−T)−Sm but this not the point at the moment. The point is that one has 3 sectors (government, business, household) and NOT 2 (government, “non-government”). The inadmissible collapsing of the business sector and household sector to the “non-government” sector makes profit disappear. This operation is absolutely disqualifying for an academic economist.

#2 Wikipedia and the promotion of economists’ idiotism
https://axecorg.blogspot.com/2018/07/wikipedia-and-promotion-of-economists.html

S400 said...

Giant baby EHK didn’t understand the hint above. It meant Fuck off! Clear enough?

Kaivey said...

I always thought that Egmont was a libertarian, but he kept his cards close to his chest. He said his economics is based on science, but a zero tax economy, or a lightly taxed one, is a political position.

Egmont says they when the government deficit spends it creates inflation and the rich capture the money, but they capture most of people's money in he end anyway. If people borrow from the banks, they capture this money as well when they buy goods and services.

Does Egmont's equations show how government deficit money can grow the economy, which means the government can end up getting more back than it put in, just like any business that borrows to invest.

AXEC / E.K-H said...

Kaivey

You say: “Egmont says they when the government deficit spends it creates inflation …”

No, I prove the exact opposite: deficit spending per se does NOT cause inflation.#1

Egmont Kakarot-Handtke

#1 MMT and the inflation-red-herring
https://axecorg.blogspot.com/2018/04/mmt-and-inflation-red-herring.html

S400 said...

The only thing Eggmont proves is that he doesn’t understand meaning of FUCK OFF.

AXEC / E.K-H said...

Kaivey

You say: “… when the government deficit spends … the rich capture the money, but they capture most of people’s money in the end anyway. If people borrow from the banks, they capture this money as well when they buy goods and services. ”

The answer is in the mathematical truth: Everyone can’t be in surplus simultaneously.

So, if the balance of the government sector (G−T) is zero, and the balance of household sector Sm is zero, the business sector as a whole cannot make any profit, i.e. Qm=0. This follows from the macroeconomic Profit Law Qm=(G−T)−Sm.

So, “the rich” can capture NOTHING, i.e. cannot be in surplus, if the other sectors together are not in deficit. Profit for the economy as a whole does NOT depend on greediness or grabbiness or profit maximization or other psychological/behavioral factors but alone on the macroeconomic balances.

While it is true that one firm can increase profit by increasing productivity or lowering wages, this does NOT hold for the economy as a whole. This is the Fallacy of Composition.

WeThePeople can effortlessly prevent “the rich” from “capturing” profit by setting the sectoral balances right.#1 With deficit-spending/money-creation, though, MMTers do the exact OPPOSITE.

Egmont Kakarot-Handtke

#1 How the 99 percent can bring overall profit of the 1 percent legally down to zero in 2017
http://axecorg.blogspot.com/2017/01/how-99-percent-can-bring-overall-profit.html

Kaivey said...

'No, I prove the exact opposite: deficit spending per se does NOT cause inflation.#1

Egmont Kakarot-Handtke'

That's good to hear that, Egmont. I will admit I took a risk and made an assumption, so my apologies, but at least I got a good answer.

Thanks,

Kevin.