Zimbabwe!
Tim Worstall doubles down.
(Tim covers himself in the concluding paragraphs though.)
Continental Telegraph
The Problem With Modern Monetary Theory – Explained For Children So MMT Enthusiasts Can Understand
Tim Worstall
Tuesday, December 18, 2018
Tim Worstall — The Problem With Modern Monetary Theory – Explained For Children So MMT Enthusiasts Can Understand
Zimbabwe!
Tim Worstall doubles down.
(Tim covers himself in the concluding paragraphs though.)
Continental Telegraph
The Problem With Modern Monetary Theory – Explained For Children So MMT Enthusiasts Can Understand
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141 comments:
I'd like to point out that I learned how our monetary and financial systems work from MMT. I have a degree in economics from the University of Michigan and practiced in various posts for 4 years, but I was never taught correctly how money is created, the concept of sectoral balances, functional finance, and other basics. MMT is the most coherent explanation of economics that I've encountered.
MMT is just an excuse to support the theft and transfer of wealth to the recipients of the newly created money. That is the salient characteristic of our "modern money" system imposed upon us by the .01%. But only MMTers thought to celebrate such a criminal enterprise. Normal people should be horrified and appalled.
Articles like Worstall's are not surprising because some MMTers (e.g. Stephanie Kelton) do give the impression they think simply printing money solves every problem. Of course Kelton can point to something they've said in the small print which says they're aware of the dangers of inflation. But that point hardly ever appears in SK's "large print".
MMT gets the inflation issue right as compared to conventional wisdom which overemphasizes interest rates.
MMT gets the inflation issue right as compared to conventional wisdom which overemphasizes interest rates.
The idea that government protected banks can create loans out of nothing which borrowers then must pay back with money they must work hard for should be appalling to any normal person. MMT did not discover that horrible feature. Instead, MMT glorifies the creation of funny fiat money out of nothing. I never thought that would be possible.
Of course Kelton can point to something they've said in the small print which says they're aware of the dangers of inflation.
Wow. A funny money system that solves nothing, causes most economic problems and is the main mechanism to transfer wealth to the .1%. Oh, and as a bonus, it causes inflation! At least we admit that.
Oh, and as a bonus, it causes inflation! Bob Roddis
So did gold in the California Gold Rush.
So your problem isn't what money is made of but that more of it shall be made once you think you have enough? Rather selfish, no?
Use it or lose it, Bob, is what God has said (Matthew 25:14-30).
So did gold in the California Gold Rush.
As this chart proves, people suffered year after year after year horrific levels of price inflation in the USA during the 1800s. Not.
AA, you are a genius at locating and analyzing essential historical facts.
https://www.economics-charts.com/cpi/cpi-1800-2005.html
So Bob, when are you going to advocate that all citizens be allowed to bypass the banks and have accounts at the Central Bank or Treasury itself?
Or do citizens NOT have an inherent right to use their Nation's fiat in safe, convenient, risk-free account form?
Come on. Here's your chance to show that you're not a closet toadie for banks.
Reply to his last article. Applies here still more.
"Tim wrote in his blog post that MMT says “Governments aren’t constrained by not having any money to do good things with, they can just make it and spend it, Yippeee!
Tim is dishonest here – he knows every MMT text emphasizes that real resources are the limit, and this is measured by inflation. If a government carries out public projects to the extent the limits of real resources are being reached, it begins to become evident in the price level. At this point the government is constrained and should not do still more projects. This is basic MMT.
The fact is, modern developed peacetime governments have never been close to this limit. What minuscule amount of inflation in developing economies there has been has been from the supply side (70s oil prices), ill advised tax cuts, and/or deregulation of finance according to mainstream econ “theory” (AKA= “finance sector special interests”),
MMT emphasizes that governments are constrained and delineates _precisely_ what that limit is.
Tim then writes in the original blog post:
“And then we’ve this cautionary little tale about how the end game plays out. There’re more than just the one of those cautionary tales of course, Zimbabwe and Venezuela come to mind. Or perhaps Argentina: “
Two things wrong here. First, not even the many extreme cases of inflation in developing countries resulted from government spending. In every case it is some combination of dictators with bad policy, extreme Dutch disease destroying the productive base of the economy, dictators destroying the productive base of the economy, ill-advised currency pegs collapsing, reliance on imported goods, losing wars, internal political strife, lack of legitimacy to tax, lack of bureaucratic efficiency to tax, and/or too much corruption to tax.
Not from government spending.
In developed countries, there has been very little problematic price rise at all. So the “cautionary tale” does not even apply, according to empirical evidence and history. What tiny bit of price instability there has been at all has been from ill advised tax-cuts (in a boom), or from (very) ill-advised financial deregulation (causing a credit impulse that in effect increases effective demand from the finance sector rather than from public spending) and that is merely a transfer of wealth to the Finance Class. And of course the 1970s supply side oil episode. But again, 1) price rises have been mild, not problematic and 2) they share one thing with the developing countries examples above – they ALSO were not caused by government spending.
Tim wrote a dishonest article – wilfully misrepresenting what MMT people say and write. Further, it gets the cause of price instability wrong, both for developing countries and for developed countries.
Tim, you should cut and paste any MMT segments about constraints on spending, that way you will represent them honestly. And don't resort to clearly false hyperbole as your only examples.
Give us an article of REAL criticism of MMT. There are always details that can be made better in economics. If you think we should not spend more to help the unfortunate, explain why. But don't misrepresent MMT. And don't rely on the myth that "inflation” is what is keeping developed countries from carrying out public projects. The data says otherwise, we can spend more and not cause inflation.
PS Just as an example of what really constructive criticism can look like, Steve Randy Waldman gets it right here:
“MMT stabilization policy — some comments & critiques”
https://www.interfluidity.com/v2/1357.html
This is the kind of dialogue that makes economics, and public policy, better.
You can do better than “The End Game Of Modern Monetary Theory” Tim! "
Bob Roddis - Hayek thinks you are wrong:
"“Although I have myself given currency to the expression ‘neutral money’ (which, as I discovered later, I had unconsciously borrowed from Wicksell), it was intended to describe this almost universally made assumption of theoretical analysis and to raise the question whether any real money could ever possess this property, and not as a model to be aimed at by monetary policy. I have long since come to the conclusion that no real money can ever be neutral in this sense, and that we must be content with a system that rapidly corrects the inevitable errors.” (Hayek 1990: 87–88). "
http://socialdemocracy21stcentury.blogspot.com/2011/09/are-cantillon-effects-argument-against.html
As I have said for nearly a decade, "Lord Keynes" does not even understand the basic Austrian concept of economic calculation:
Bob Murphy:
Heh this is actually funny. I had always assumed Roddis was being unfair when accusing LK–who has read a ton of Hayek–of not knowing the Austrian concept of economic calculation. But, based on LK’s angry retort, turns out Roddis was right.
https://consultingbyrpm.com/blog/2012/09/tom-woods-keeps-krugmans-feet-to-the-fire.html#comment-45198
I've never said that voluntary money, free of the threat of violence, is 100% "neutral", whatever that is supposed to mean. Any person that receives new money first regardless of its nature is obtaining an increase in wealth.
I've never said that voluntary money, free of the threat of violence, ... Bob Roddis
Except Austrians are not anarchists so it's hypocritical to suggest you are.
[Meanwhile crickets from Bob wrt citizens having the inherent right to use their Nation's fiat in account form without which we are doomed to using private bank deposits instead. So much for Bob's crocodile tears wrt to bank funny money.]
[C]itizens having the inherent right to use their Nation's fiat in account form without which we are doomed to using private bank deposits instead..
There is no such right. The statement is pure lunacy. Plus, in a free society, people can borrow from whomever they like and banks would have no special privileges.
Also, many, of not most Austrians are anarcho-capitalist, which is a stupid name but it simply means that they oppose aggressive violence in all of its forms. I fail to see the problem with opposing aggressive violence.
Bob Roddis,
What is voluntary money? And how does new money come into existence in your preferred economic framework?
Anticipating that you might say any private sector actor is permitted to create money-like things as long as other private sector actors are willing to voluntarily accept those IOUs - in other words, money is created spontaneously and endogenously in the private sector - what makes you think that the most power private companies won't simply collude to create a private, tyrannical money system?... that we all end up using because for the average person, having a consistent unit of account is enormously convenient. Further anticipating, completion will solve this problem?
I'm honestly interested in your thoughts on this since you constantly rail repeat how fraudulent government fiat is.
There is no such right. The statement is pure lunacy. Bob Roddis
Actually, it's a drop dead obvious duty of a monetarily sovereign given the long, shameful history of private banks. The lunacy is among people who fail to see that.
Plus, in a free society, people can borrow from whomever they like and banks would have no special privileges. Bob Roddis
Except needlessly expensive fiat biases the economy toward deflation which the banks exploit with fractional reserves - resulting in the boom-bust cycle.
I fail to see the problem with opposing aggressive violence. Bob Roddis
Notice the qualifier "aggressive". Austrians are in favor of unlimited violence to protect private property - no matter how unjustly that property was acquired.
Face it Bob, you're defending the morally indefensible from $700 government hammers (i.e. needlessly expensive fiat) to people enslaved to banks.
And why? Do you wish for more than is just? Do you wish to exploit others unjustly?
what makes you think that the most power private companies won't simply collude to create a private, tyrannical money system?
Because monopolies are not generally a problem in the free market. As I've proposed about 16 times here, please read Kolko's "The Triumph of Conservatism". Big companies find it hard to monopolize and need government aid to do it. Why do you think the big banks created the Federal Reserve? The entire "the free market causes monopolies" and "the free market leads to unemployment" memes are completely false and have been eviscerated for decades. The alleged solutions to those non-problems cause most of our problems. Keynesian policy is the cause of the problems it claims to cure.
Thank you for the response to that part of my question.
What about the first part?...
What is voluntary money? And how does new money come into existence in your preferred economic framework
Is it as I suggested, any private entity can create money-like things as long as other private entities are willing to voluntarily accept them?
Except needlessly expensive fiat biases the economy toward deflation which the banks exploit with fractional reserves - resulting in the boom-bust cycle. aa
Not that banks cannot create deposits/liabilities for inexpensive fiat too but inexpensive fiat allows:
1) All citizens to use fiat in convenient, safe, risk-free account form at the Central Bank or Treasury itself.
2) Thus making bank-runs on individual banks or on EVERY bank quite easy and safe, i.e. withdrawing lots of cash from a bank is not recommended from a personal safety viewpoint.
Are you opposed to making bank runs safe and convenient, Bob? Thus precluding an important market discipline?
Andrew Anderson,
I don't want to speak for Roddis, but I think he imagines a world where banks simply take in deposits and make loans based on those deposits. You'd only lend your money to a bank to do that if you wanted to assume the risk for the rate of return.
As for where you'd store your money risk-free, I'm not sure such a thing would exist in a Roddis world besides cash. Any digital deposit of your money would be with a private sector entity you entrusted to safeguard your money, who would at minimum charge fees to safeguard your money in order to meet it's own operating expenses.
If he does imagine a world where banks can create IOUs, like any private sector can create IOUs, as long as other private sector entities are willing to accept them, perhaps we'd have something similar to the pre-Federal Reserve Bank days, where the Big Banks in NYC acted as de facto central bank clearing houses.
I could be mistaken though. For a Roddis world, you really have to reimagine the money system in a simple form from the ground up.
Then again, what exactly is "cash" in a world without government money? Cash in what denomination?!
I don't want to speak for Roddis, but I think he imagines a world where banks simply take in deposits and make loans based on those deposits. SDB
I used to follow the Austrians and I can assure you they LOVE the boom-bust cycle - so they can wait like vultures, hoarding fiat, in wait for the inevitable bust so they can buy assets at fire-sale prices.
So it's unlikely they oppose fractional reserve lending even though such might be thought of as fraud, a form of "aggressive violence."
Personally, I am not against banks creating deposits/liabilities for fiat but only if:
1) Banks are 100% private with no government privilege.
2) Citizens, at least, may have inherently safe, convenient, inherently risk-free debit/checking accounts at the Central Bank or Treasury itself, just like depository institutions, aka "the banks." -thus rendering bank depositors 100% voluntary, at least as far as citizens are concerned.
@ Roddis
"MMT is just an excuse to support the theft and transfer of wealth to the recipients of the newly created money."
That is exactly what the current system does.
"MMT glorifies the creation of funny fiat money out of nothing. I never thought that would be possible."
All fiat money is created out of nothing. You are astoundingly stupid.
monopolies are not generally a problem in the free market
There are no free markets. Your statement is based on nothing but wishful thinking and a complete lack of intelligence. Unless of course you can demonstrate a free market that demonstrates your bullshit.
Roddis is afraid of MMT because it would end his bankruptcy practice.
Speaketh Roddis! :)
What does money look like in your preferred world?
--Where does it come from? How is new money created?
--Is money ever removed from circulation?
What does the financial system look like?
--Are there banks? If so, what do they do?
--Is there such a thing as "cash"? Where does it come from?
--Would there be any risk-free safe digital format for citizens to store their money? If yes, what is the institution other than the government that can operate it? In other words, why would any private institution(s) manage our money without charging us for that service?
Any additional thoughts on these topics are welcome...
Bob Roddis has called the general population "rabble" and has, just recently, denied that citizens have an inherent right to use their Nation's fiat in safe, convenient, risk-free account form at the Central Bank or Treasury itself.
And he's one of the nicer Austrians!
In general, the Austrians are second or third rate thinkers who add hatred* and jealousy to stubborn stupidity and the worship of needless misery - "to purge the mal-investments."**
Not that Progressives, including MMT advocates have not, to their shame, given those wicked reactionaries ample ammunition with which to criticize the current system.
*Murray Rothbard said "Hatred is my muse."
**Reminds me of "Then let them die and decrease the surplus population." Ebenezer Scrooge
Bob, just what is "voluntary money", "real money"? How are they different from "fiat funny money"?
I think that if you are more careful about understanding transactions as they occur, you will see that behind the "voluntary money" or "real money" is "fiat funny money".
So all money is fiat funny money. Austrian economics is based on a theory of money that ignores this. In the cases when this is negligible, when we could think of money as a medium of exchange, as a commodity, a thing, Austrian economics is a good approximation. But this is a pretty strong idealization, one that becomes less and less applicable to real world economies, advanced economies, ever year.
As for where you'd store your money risk-free, I'm not sure such a thing would exist in a Roddis world besides cash. SDB
Imagine the kidnappings, home invasions, extortions, etc. if it was known that citizens had to use physical fiat to escape risk.
So cash is not risk-free.
And Bob Roddis, like the other Austrians, being closet would-be bankers, is thus opposed to citizens being allowed inherently risk-free fiat accounts at the Central Bank or Treasury itself.
And you'll find the same shameful policy among MMT advocates, i.e. being pro-bank rather than pro-citizen.
Not that it matters much since Central Banks themselves, being tired of being servants to the banks, I suppose, are preparing to by-pass them via an additional payment system that does not necessarily work through them.
Clint Ballinger
You say: “Give us an article of REAL criticism of MMT. There are always details that can be made better in economics. If you think we should not spend more to help the unfortunate, explain why.”
Here it is: MMT is (i) a scientific failure and (ii) a political fraud.#1
Because of Public Deficit = Private Profit, MMT deficit-spending/money-creation does NOT help WeThePeople but the fortunate Oligarchy. The lethal effect of MMT is on distribution#2.
The discussion between long-dead Austrianism and recently deceased MMT#3 is nothing more than a groundhog-day troll brawl in the political gutter.
Austrianism is refuted, MMT is refuted, end of discussion.
Egmont Kakarot-Handtke
#1 MMT Progressives: The knife in the back of WeThePeople
https://axecorg.blogspot.com/2018/12/mmt-progressives-knife-in-back-of.html
#2 Deficits matter for distribution
https://axecorg.blogspot.com/2018/02/deficits-matter-for-distribution.html
#3 The final implosion of MMT
https://axecorg.blogspot.com/2016/10/the-final-implosion-of-mmt.html
Andrew Anderson: "Not that it matters much since Central Banks themselves, being tired of being servants to the banks, I suppose, are preparing to by-pass them via an additional payment system that does not necessarily work through them."
What are you talking about there? Can you provide more details please. Ty.
Supporting Fast Payments for All
Read between the lines; "fast payments for all" implies that banks cannot be intermediaries since their shortage of reserves would prevent all their depositors from paying their bills too - unless the banks were granted instant and automatic overdrafts from the Central Bank too.
Plus there have been recent articles proposing Central Bank accounts for all, e.g. https://www.economist.com/finance-and-economics/2018/05/26/central-banks-should-consider-offering-accounts-to-everyone
The MMT folks should be ashamed they aren't leading this movement instead of advocating like dumb sheep the recommendations of a banker, Warren Mosler.
2010 Why budget deficits drive private profit
I provide a refutation of the theory of loanable funds in this blog – Budget deficits do not cause higher interest rates – for more discussion on this point.
Its conception of the way the banking operates is deeply flawed. There is no finite pool of saving that is competed for. Loans create deposits so any credit-worthy customer can typically get funds. Reserves to support these loans are added later – that is, loans are never constrained in an aggregate sense by a “lack of reserves”. Bill Mitchell [bold added]
Allowing the workers' savings to be completely bypassed to, say, finance automation to eliminate the workers' jobs.
Does that sound fair to you, Clint?
And where's the necessity since inexpensive fiat allows an unlimited amount of fiat to be equally distributed to all citizens for lending, if they desire, at honest interest rates?
Hence MMT advocates, while decrying the Gold Standard, continue to support a Gold Standard banking model. What kind of sense does that make? What kind of moral sense does it make?
@AA WTF are you talking about? MMT is not a 'gold standard' banking model.
The Levy Economics Institute of Bard College, 2008
Where Profits Come From: Answering the Critical Question That Few Ever Ask
My answer to Clint Ballinger somehow got lost.
For the full text see
https://axecorg.blogspot.com/2018/12/mmt-progressives-knife-in-back-of.html
Everything AXEC says is said in greater detail in the Levy Institute paper I listed above. And it was actually published in 1997. That paper and topic deserves more attention. But Egmont simple parrots it, but w less detail or sophistication. He says nothing new, except his opinion taxes on profits should be 100%, and the tooth fairy will run all the non profitable companies in the public interest.
My answer to Clint Ballinger got lost for the 2. time.
For the full text see
https://axecorg.blogspot.com/2018/12/mmt-progressives-knife-in-back-of.html
Egmont, there is nothing original in your work. This two decade old MMT related paper already covers everything you say, and more.
Tom Hickey
As official Contributor of the Mike Norman Economics blog (“We seek the truth, …”) you are supposed to make sure that submitted posts do appear.
I urge you to de-block my answer to Clint Ballinger.
Egmont Kakarot-Handtke
Btw, I am all for no profits, with worker owned co ops.
Egmont, probably automatic, all the links you always put. Spammy. Just write real comments
Clint Ballinger
You say: “Btw, I am all for no profits, with worker owned co ops.”
I say: “I am all for stopping you to corrupt the Mike Norman Economics blog.”
Egmont Kakarot-Handtke
Clint Ballinger
You say: “Egmont, probably automatic, all the links you always put. Spammy.”
Posts are restricted to about 4000 characters. This is sufficient for the usual brain-dead troll blather but NOT sufficient for a detailed argument or proof. Real arguments for real economists are therefore complemented with references which give the full picture.
For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html
Egmont Kakarot-Handtke
The problem with Egmomt is that he suffers from ADHD (Attention Deficit Hyperblathering Disorder). Check-back question: When did Egmomt as the heterodox chief proponent of pseudoscience last formulate a testable proposition?
Noah Way
You say: “Check-back question: When did Egmomt as the heterodox chief proponent of pseudoscience last formulate a testable proposition?”
Here: “When Clint Ballinger’s smokescreen of irrelevant arguments is taken away, the whole issue reduces to the all-decisive question which of the two macroeconomic relations is true/false: (i) (I−S)+(G−T)+(X−M)=0 (MMT) (ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 (AXEC).
This question can be empirically decided.”#1
Check-back question: When did Noah Way last formulate a testable proposition?
Egmont Kakarot-Handtke
#1 MMT: Time to say goodbye
https://axecorg.blogspot.com/2018/12/mmt-time-to-say-goodbye.html
MMT is not a 'gold standard' banking model. Noah Way
Under the Gold Standard, fiat was too expensive and hence too scarce to support a growing population and economy so the bias was toward price deflation and stagnation since price deflation rewards risk-free fiat hoarding - not investment.
That, and the lack of adequate government-provided fiat accounts that all citizens might use, left a vacuum that the banks filled by accepting fiat as deposits - thus providing accounting services to citizens - and creating additional deposits ("Bank loans create bank deposits") based on fractional reserves to take advantage of and counter the deflationary bias.
But now fiat is, at it should be, inexpensive and can certainly be created in any amount necessary to prevent price deflation; and the citizens, at least, should certainly be allowed to directly deal in fiat via accounts at the Central Bank or Treasury itself.
Then what need is there for bank deposits? When the entire economy might directly use inexpensive fiat in account form?
Not that banks should be outlawed but certainly all privileges for them should be abolished since government-privileged banks are as obsolete and unjust as needlessly expensive fiat, i.e. the Gold Standard.
Then where is the call from MMT advocates to abolish all privileges for the banks and to allow all citizens to use their Nation's fiat in safe, inherently risk-free account form at the Central Bank or Treasury?
Andrew-- In your model, who would make loans and where would they get the money to make the loans? Also, who would do the loan risk evaluations that banks presently do?
Thanks
Egmont
I too could write an equation with a string of undefined variables, and it would be just as meaningless as yours. Isn’t math f(u)n^2?
Here is a testable proposition: provide in English, in less than 4,000 words, a summary of your proposition AND existing and real-world demonstrations of it.
FYI a bunch of equations and self-references won’t do the job. If you’re not full of shit this would be quite beneficial to your career.
Dan,
The banks could serve as loan intermediaries between non-bank private sector accounts at the Central Bank or Treasury and also create as many deposits as they dared without government-privilege, including captive deposits.
As for money, if interest rates are deemed too high then equal fiat distributions, i.e. a Citizen's Dividend, to all citizens should lower them. These might be financed with Overt Monetary Finance and/or negative interest on large and non-citizen accounts at the Central Bank or Treasury.
Thanks for the question.
Clint Ballinger
You say: “Egmont, there is nothing original in your work. This two decade old MMT related paper already covers everything you say, and more.”
In fact, the Levy Institute paper ‘Where Profits Come From’ is an update of Levy, S. J., and Levy, D. A. (1983). Profits and the Future of the American Society. Cambridge, Philadelphia, etc.: Harper and Row.
Fact is that the 1983 version has already been refuted together with Keynes’ GT in my working paper of 2011.#1
If I simply parrot the Levy-Kalecki equations (“One of my favourite economists ― Michal Kalecki was one of the early pioneers in developing an understanding of the origins of profits from a macroeconomics perspective.” Bill Mitchell) why, then, does Bill Mitchell block all my contributions since 2016?#2
Let us state the facts that are indeed original in my work: The academic Bill Mitchell continuously violates scientific standards#3, MMT is materially/formally inconsistent,#4 MMT policy is a political fraud, MMTers in general and Clint Ballinger, in particular, are stupid/corrupt agenda pushers.
Egmont Kakarot-Handtke
#1 Keynes’s Missing Axioms
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1841408
#2 The final implosion of MMT
https://axecorg.blogspot.com/2016/10/the-final-implosion-of-mmt.html
#3 Cryptoeconomics ― the best of Bill Mitchell’s spam folder
https://axecorg.blogspot.com/2018/01/cryptoeconomics-best-of-bill-mitchells.html
#4 Cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html
"Pn = I + (G – T) + NX + Cp – Sw
which says in English, that gross profits after tax (Pn) equals gross investment (I), plus the budget deficit (G – T), plus the export surplus (NX), plus capitalists’ consumption (Cp) minus workers’ saving (Sw).
So the gross profits after tax will be higher, the higher is gross investment (I), the larger the budget deficit (G – T), the higher is capitalists’ consumption (Cp) and the lower is workers’ saving (Sw)."
http://bilbo.economicoutlook.net/blog/?p=12003
Egmont reminds me of Fleischmann and Pons. Lots of banging the table but nothing to back it up except "But look at my equations!"
Yet another example of the Dunning-Kruger effect.
Clint Ballinger
You quote Bill Mitchell who, in turn, quotes Kalecki’s profit equation: “Pn = I + (G – T) + NX + Cp – Sw (i)”
In the Wikipedia entry, MMT asserts: “Therefore, budget deficits add net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This concept is widely represented in macroeconomic theory by the national income identity, G − T = S − I − NX (ii) where G is government spending, T is taxes, S is savings, I is investment and NX is net exports.”#1
1. NO way leads from the profit equation (i) to the balances equation (ii). So, MMT is formally inconsistent.
2. Somewhere between (i) and (ii) profit vanished.#2
3. Equation (i) is false, to begin with. Kalecki, too, got macroeconomic profit wrong.#3
4. The axiomatically correct Profit Law is given as Qm=Yd+(I−Sm)+(G−T)+NX (iii) Legend: Qm monetary profit/loss, Yd distributed profit, I investment expenditure, Sm monetary saving/dissaving, G government expenditures, T taxes, NX=(X−M) X exports, M imports. Total profit Q is the sum of monetary and nonmonetary profit/loss, i.e. Q=Qm+Qn (iv).#4, #5
5. From the correct Profit Law (iii) follows the correct sectoral balances equation (I−Sm)+(G−T)+NX−(Qm−Yd)=0 (v). This equation contains profit and distributed profit while those magnitudes are missing in (ii).
Conclusion: MMT is materially/formally inconsistent and MMT policy is a political fraud.
Egmont Kakarot-Handtke
#1 Wikipedia Modern Monetary Theory
https://en.wikipedia.org/wiki/Modern_Monetary_Theory
#2 MMT and the magical profit disappearance
http://axecorg.blogspot.com/2017/08/mmt-and-magical-profit-disappearance.html
#3 Cross-references Kalecki
https://axecorg.blogspot.com/2015/02/kalecki-cross-references.html
#4 The Emergence of Profit and Interest in the Monetary Circuit
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1973952
#5 Primary and Secondary Markets Levy Economics Institute of Bard College Working Paper No. 741
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2189622
“budget deficits add net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector”
According to Egmont this statement is false and he uses some symbolic mumbo jumbo to “prove” it.
Maybe a clear statement in common language would be more suitable for explanation and discussion.
Noah Way
You say: “Maybe a clear statement in common language would be more suitable for explanation and discussion.”
No, if you cannot read a simple equation you are out of economics. An equation is the clearest possible statement.#1
You quote: “budget deficits add net financial assets to the private sector;” and complain about symbolic mumbo-jumbo as proof.
If you do not understand why this statement is false go to AXECorg and google “private sector” and you will get 40 hits.
For example: “There is no such thing as the private sector but there is the business sector and the household sector. Hence, the MMT balances equation is false.”
And now get your dummy and your diaper and go to sleep.
Egmont Kakarot-Handtke
#1 Marshall and the Cambridge School of plain economic gibberish
https://axecorg.blogspot.com/2016/09/marshall-and-cambridge-school-of-plain.html
Noah Way
You say: “… every one of his ‘arguments’ is supported by another one of his arguments.”
This is called deductive reasoning and it secures logical consistency. Consistency, material and logical, is the essence of science: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle)
It is pretty obvious that in your two-digits-IQ world you have never heard of consistency.
Go back to troll school and ask for new slogans. The common-language slogan does not work because everybody knows by now that there is no such thing as a common language of morons and scientists.#1
Egmont Kakarot-Handtke
#1 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207598
@ Egmont
Supporting every one of your arguments with another one of your arguments is a logical fallacy known as circular reasoning.
Toss out some more insults, they really help prove the point. Just not the one you think.
Noah Way
You say: “Supporting every one of your arguments with another one of your arguments is a logical fallacy known as circular reasoning.”
This is only true for poorly trained trolls. In science, all reasoning starts with clearly stated axioms: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; …). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper)#1
Go back to troll school and ask for a new slogan. The circularity slogan does not work either.
Egmont Kakarot-Handtke
#1 Both mainstream economics and MMT are axiomatically false
https://axecorg.blogspot.com/2018/09/both-mainstream-economics-and-mmt-are.html
Economics is known as the silly science with good reason. Egmont is not a scientist - he is an ideologue and as such no different from many of the economists he disparages. He is a self-contained universe of arrogance and stupidity, unable to accept or address any challenge to his genius (i.e. bullshit).
I give him credit for persistence, but being persistently stupid is not high praise.
Noah Way
Seems that they have run out of slogans at your troll school.
So let us sum up. The formal foundations of MMT are inconsistent and therefore scientifically worthless. MMT policy has no sound scientific foundations. Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support. MMT is just another political fraud. MMTers are failed/fake scientists and have to be expelled from the sciences.
Egmont Kakarot-Handtke
Repeating the same bullshit endlessly does not substantiate your argument - despite what you imagine.
Because you don’t find a formal foundation (basis for natural science) in MMT (a social science) you dismiss it - with formal science, which has no bearing on it.
Sheer genius, only conceivable by an egotistical moron of the highest order, such as yourself. Maybe we should speculate on your ultimate purpose ... I suspect academic self-advancement, but only in a venue where science and logic are all but absent.
Noah Way
You are totally off the mark.
To begin with, economics is NOT a social science but a system science.
You maintain: “Because you don’t find a formal foundation (basis for natural science) in MMT (a social science) you dismiss it.”
I do find a formal foundation, i.e. the Kalecki profit equation and the MMT sectoral balances equation, but both are provably false. So, the rest of MMT is false. You don’t understand this because at the MMT troll school they teach not more than five slogans and not more math than counting to ten.
MMTers don’t get macro right because they are too stupid. However, this is not a disadvantage for political agenda pushing where only useful idiots are needed.
Egmont Kakarot-Handtke
Egmont just doesn't understand that his toy "pure consumption" economy assumes away all that is of interest. Nor does he understand that in his mind he has "solved economics" by having a tooth fairy fix all the hard parts he has black boxed. As I wrote before, his silliness is evident when you push to the real meat of the matter:
"I thought there might be a grain of something interesting in Egmont's work. But then I read his "link" reply to my tax question. Far more simple-minded than I could have possibly imagined. But at least it definitively makes clear there is no substance at all there (I know, I know, I should have known...but I am always on the lookout for original ideas, no matter the source).
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 "
I now know I can simply re-post this every I see his blather. He should be embarrassed by it. Maybe everyone should just cut and paste this in every forum where he wastes space
Noah Way
You recount folk-wisdom from the HowToMakeFriends course: “You don’t win arguments by calling people stupid, you win them by making a convincing case.”
It should be quite obvious even to a slow-motion thinker like you that the point of this thread is the refutation of MMT and to make sure that MMTers are thrown out of science. Accordingly, the very idea to convince you or any other MMTer is plainly absurd.
You are beyond hope and you can prove this for yourself by re-reading your stuff.
You say: “Make the case in English”. I have already made the case in English and here it is again: The formal foundations of MMT are inconsistent and therefore the whole approach is scientifically worthless. MMT policy has no sound scientific foundations. Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support. MMT is just another political fraud. That MMT is NOT science but political agenda pushing is as clear as the day. The one issue that has to be clarified is: Which MMT-academic is sponsored by which billionaire?
Easy to understand even for the stupid and corrupt folks of MMT-La-La-Land.
Egmont Kakarot-Handtke
Egmont: MMT is worthless.
Question: Why?
Egmont: Because I say so.
Thank you for that concise scientific proof. Unfortunately (for you) it only proves that you are a clueless academic buffoon. If you can't dazzle them with brilliance, baffle them with bullshit. The number of papers you've published is not a measure of your intellect, it is a measure of your persistence and the depth of your pockets. The incessant spamming of links to your site makes you appear relevant, at least until one one starts trying to digest your bullshit.
Post one more time here please so that you can "win" by having the last word. Be sure to include a variety of insults to demonstrate the strength of your convictions, if not your argument.
MMT sucks
Comment on the Principles of MMT
For everyone interested in MMT and the current state of the debate, Bill Mitchell and Warren Mosler have provided a “fairly precise account” of the “essence of MMT”.#1 This account is used here as a canonical reference for the final refutation of MMT. The following is a concise verbal summary, formal proofs have been given elsewhere.#2
1. MMT is bad theory
The fatal analytical blunder is to be found under the heading “Principle 3: The Public Debt story.” It goes as follows: “In trying to understand, the issuance of public debt, we note that funds spent by the State into the non-government sector (for goods and services) is either lost to the economy when taxes are paid, or remains in the economy as savings until used to pay taxes. That is just a matter of accounting. The ‘savings’ are stored as financial assets in various forms. As a matter of accounting between the sectors, a government fiscal deficit … adds net financial assets (adding to non-government savings) available to the non-government sector and a fiscal surplus has the opposite effect.”
The whole MMT blunder/fraud sits in the term “non-government sector”, sometimes also referred to as “private sector” or “private domestic sector”.
There is NO such thing as the “non-government sector”, there is the business sector and the household sector and the balance of the household sector is saving/dissaving and the balance of the business sector is profit/loss. And both cannot be lumped together to “saving of the non-government sector”. Methodologically, this is called the Humpty Dumpty Fallacy. This fallacy makes macroeconomic profit disappear. Notice that the word profit ― the pivotal magnitude of economics ― is not to be found in Mitchell’s/Mosler’s canonical summary of MMT principles. This alone is disqualifying for economic theory.
MMT gets macroeconomic accounting wrong. Both MMTers and anti-MMTers do not understand the elementary mathematics that underlies macroeconomics. They are scientifically incompetent. The representative economists cannot tell to this day which of the two macroeconomic relations is true/false: (i) (I−S)+(G−T)+(X−M)=0 (ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.
Eq. (i) represents a zero profit economy and constitutes the formal foundation of MMT. Obviously, MMT academics do not know what they are talking about. MMT is proto-scientific garbage, i.e. a bunch of inconsistent slogans with an emotionally reinforced common-sense plausibility.
2. MMT is bad policy
With regard to the government’s budget, the correct sectoral balances equation (ii) boils down to Public Deficit = Private Profit, i.e. (G−T)=Qm. This piece of pure economic analysis translates into the political insight that MMT’s policy of deficit-spending/money-creation is nothing but a free lunch for the Oligarchy.
Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support. MMTers are false saviors of humanity.
See Part 2
Part 2
3. MMTers are bad people
At least, one could say, MMTers care for the unemployed, vulnerable, and poor. Not really. The MMTer resembles a man who prints counterfeit money, say a million, and distributes it with great fanfare among the poor of the town. The media praise him as a fine example of social responsibility and charity. The economic effect of the matter, though, is that the workers are the real benefactors who unwittingly are made to share their real income with the poor. The redistribution of output is effected by a barely noticeable price hike. In real terms, the ostensible MMT do-gooder does in fact NOTHING. MMT’s social policy is a hot-air PR stunt.
In addition to social hypocrisy, MMTers are guilty of violating scientific standards, suppressing/blocking/censoring critique/refutation/exposure in the econoblogosphere, of disinformation, and of phrase-mongering.
Finally, MMTers not only deceive the general public but actively try to subvert the genuine social grassroots movements.
4. Delete MMT ― Paradigm Shift ― New Paradigm
Being indefensible, MMT goes straight down the drain. However, “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) Mere critique of MMT does not help much. Macroeconomics, including the Theory of Money, has to be reconstructed from the ground up.
The new paradigm is the final nail in the coffin of MMT.
Methodological rule No 1: One has to start with the simplest possible economic configuration. The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market clearing X=O and budget balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.
The price is determined by the wage rate, which takes the role of the nominal anchor, and the productivity. From (1) follows W/P=R (2), i.e. the real wage is equal productivity. Ultimately, productivity determines the real value of money.
If one wants absolute price stability in the elementary production-consumption economy from beginning to eternity one has to apply the simple rule: change of wage rate = change of productivity. This prevents both inflation and deflation.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.
See Part 3
Part 3
In the analytical beginning, there is no state and no central bank. The firm pays the monthly wages with a standardized IOU and declares that this conveniently denominated title will be unconditionally accepted at the firm’s store. The employees accept that the IOUs discharge their wage claim against the firm. Since the household sector’s budget is balanced by the initial condition C=Yw, whatever the firm issues, returns until the end of the period under consideration. The firm creates IOUs and destroys them again within a short time span, i.e. a month. No IOUs are carried over to the next period. The firm’s IOU is a pure transaction medium that is continuously created out of nothing and then again destroyed. There is NO such thing as a fixed physical Quantity of Money.
The firm’s rule for IOU-creation is IOU=kYw, i.e. the nominal volume of IOU’s is strictly proportional to the wage bill. The creation of money is NOT tax-driven but wage-driven.
As a result, one has a fiat money economy with absolute price stability. No taxes are needed to force the workers to accept the firm’s privately created money. If all stick to the rules, they get an inflation-free fiat money economy and if the productivity increases over time, the real wage of the workers increases.
Problems arise, of course, if corruption sneaks in. For example, if the firm issues IOU’s in excess of the wage bill and the money is spent by a third party. This causes a price hike (NO inflation) and the real wage falls below the productivity. The business sector makes a profit which is equal to the excess IOU’s. This is what MMT’s policy of deficit-spending/money-creation amounts to when the smokescreen of political slogans is taken away.
In the next step, the creation of the firm’s private IOUs is replaced by the creation of public money by the central bank. The role of the state is to define the legal framework for the smooth and corruption-free functioning of the fiat money system.
5 Conclusion
A fiat money economy with perfect price stability and full-employment is possible in principle. This economy, though, is institutionally different from the runaway economy that has historically developed. The actual economy functions only because of a permanently growing public debt. The role of the state is defined by the Profit Law Public Deficit = Private Profit. The very survival of the capitalistic economy depends on the state. The idea of a state-free efficient supply-demand-equilibrium capitalistic economy that maximizes overall welfare is a figment of the imagination. The Invisible Hand of the market economy belongs to the state who hands out overall profit and thus indefinitely postpones the breakdown of the system.
Progressive economic policy consists of creating new institutions that guarantee a crisis-free functioning of the fiat money economy.
MMT is a falsified economic theory. It is scientifically unacceptable and has to be fully replaced by a new macroeconomic approach. The best thing that can be said of MMT is that Walrasianism, Keynesianism, Marxianism, Austrianism are even worse.
Egmont Kakarot-Handtke
#1 Comment on Bill Mitchell on ‘When two original MMT developers get together to discuss their work’
http://bilbo.economicoutlook.net/blog/?p=41133
#2 See cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html
In response to Egmont
1) MMT is bad theory: your opinion, not fact. Re: 'non-government sector' recognizes the sector that does not create sovereign currency.
2) MMT is bad policy: here you agree with one of the basic principles of MMT but accuse it of vile intention (the same vile intentions that rule the present economic system) despite the fact that MMT has not been implemented anywhere and as such there is no evidence to support your conjecture.
3) MMTers are bad people: your bias (here and in e title of every paragraph) is not 'scientific'. In fact it runs counter to the claims you make of being scientific. You are clearly operating out of ego, pride, and stupidity - not out of clear logical thought and careful analysis.
4) delete MMT: gobbledygook equations based on your faulty analysis ('non-government sector'). You continue to treat economics as if it was a natural science, bound by physical laws, when it is not. Economics is known as "the silly science" for good reason.
5) conclusion: MMT is a falsified economic theory. Thanks for sharing your opinion. That's all it is despite any amount of blustering and insults on your part. Being a self-proclaimed scientist, trained in logical analysis, you will now dismiss my comments because they conflict with yours and therefore - and for no other reason - must be wrong.
Money is an artificial construct, bound only by the rules applied to it. The question is: what are the rules? Can we make better rules than the ones now in place? What are they and do we do this? Why don't you constructively propose a new economic system that both spells out and addresses your concerns instead of disparaging everything in sight? My guess is that this would not serve your purpose as you are seeking personal advancement in a narrow, largely non-scientific academic field and that nothing else matters.
You are not a theorist, you are an amateur critic.
Noah Way
You say: “My guess is that this would not serve your purpose as you are seeking personal advancement in a narrow, largely non-scientific academic field and that nothing else matters.”
You can guess until you are blue in the face. What matters is facts and proofs. Fact is that MMT is refuted on all counts.
Your bad luck is that there is nobody at the MMT troll school who can read a simple economic equation and explain to you what refutation means.
Refutation means that MMT is out and that MMTers are out. As Hume said, “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.”
However, with your mind-reading capabilities, you can perhaps make a spectacular career move from troll to soothsayer.
Egmont Kakarot-Handtke
@Egmont
Straw man response: you have completely ignored my challenges to your statements. Obviously because you cannot refute them.
"What matters is facts and proofs. Fact is that MMT is refuted on all counts."
Once again you have confused your opinion with "facts". While it is a fact that you have opinions, opinions are not facts. This makes you considerably less than the scientist you imagine yourself to be.
What matters is real world effect. The only effect you have is negative. You are the problem, not the solution.
Have a nice day.
Egmont writes “The employees accept that the IOUs discharge their wage claim against the firm”
Why would they do that?
Clint Ballinger
You cite me: “The employees accept that the IOUs discharge their wage claim against the firm” and ask: “Why would they do that?”.
It is a bit schizo that you have left the discussion already three times with: “Anyway, can quit wasting my time now at least.” and then come back with some silly question.
When you go to the supermarket you end up with a heap of various items. You, like everybody else, do not carry the items home one by one but put them in a shopping bag and henceforth handle the bag and forget the individual items until you unpack the bag again. Although each step in the process is rather simple, a lot of things can go wrong between packing and unpacking and what arrives at home is sometimes not the same as what has been bought.
For the person of a delivery service, it is completely irrelevant what items are in the bags and parcels and containers which they transport from A to B.
It is analogous in methodology. It makes good sense to put a heap of details in a conceptual bag and then forget the details for a while and operate with the bag. This logical operation is called abstraction. Many people fail already at this first step and fall into the Fallacy of Insufficient Abstraction.
The statement: “The employees accept that the IOUs discharge their wage claim.” is a conceptual bag. In a post one uses many conceptual bags because it is neither desirable nor necessary to deal with the implicit details.
For the question of how the monetary economy works it is NOT necessary to unpack the behavioral bag and to elaborate on the question of why people do what they do. What is more, to deal with motives and mental processes is the proper business of psychology/sociology and NOT of economists.
For the economist, it is sufficient to know that the worker accepts a token as wage, e.g. an entry on his electronic account at the central bank, and it is useless to exhaust oneself with psycho-sociological speculation about why he does so.
The problem of economics is that people love to speculate about other peoples’ motives and behavior despite the fact that already the ancient Greeks knew that this is a futile exercise. This is how the representative economist got lost in the wood of utility maximization and became a proto-scientific laughing stock.
Economics is a system science and therefore the whole PsySoc stuff is put into a conceptual bag which functions like a black box where only input and output are of interest.
The difference between the competent and the incompetent scientist is that the latter gets lost in motivational and behavioral speculation which is triggered by the WHY question.#1 Needless to emphasize that the PsySoc-WHY never leads to an objectively verifiable answer but only to the clueless blather that is the hallmark of economic debates.
The issue of economics is how the economic system works and NOT why people prefer strawberry yogurt over raspberry yogurt. The answer to the first question is (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 and it is testable with the precision of two decimal places.
So, my answer to your silly question “Why would they do that?” is, pick it out of your nose.
Egmont Kakarot-Handtke
#1 YouTube, Richard Feynman on Why Questions
https://www.youtube.com/watch?v=qmLGlH1PedA
Egmont writes “The employees accept that the IOUs discharge their wage claim against the firm”
Why would someone work all day for a token that is not usable in their general society? And what would make a token usable in general society (not just the Firm's store)?
And...
There is of course not one firm as in your simple example. Everyone goes and works for the firm offering a token that is accepted throughout society. Then what?
Or...the workers pillage the firm and steal everything, then go work for the other firm. Who stops that? And why?
Clint Ballinger
You say: “Why would someone work all day for a token that is not usable in their general society? And what would make a token usable in general society (not just the Firm’s store)? ”.
The analysis starts, for good methodological reasons, with one giant firm. This is, obviously, an analytical limiting case. Therefore, the analysis proceeds by differentiation, that is, by splitting the business sector successively into two and more firms. Differentiation is the inverse operation to aggregation. Differentiation is methodologically better because it avoids the Fallacy of Composition.
With more firms, it becomes obvious that private IOU’s become exponentially more awkward and that a public IOU a.k.a. money is needed as a transaction medium.
In science, you have to identify the logical origin and NOT the historical origin. Physicists, for example, do not figure out the laws of thermodynamics by asking who invented the fire and why and how and when and where did it happen. Science and History are different things.
Being storytellers, though, MMTers try to give a psycho-social historical account.
If you were a bit smarter you would have googled all the answers#1 and thus avoided to expose yourself as a dumb and lazy troll.
Egmont Kakarot-Handtke
#1
Essentials of Constructive Heterodoxy: Money, Credit, Interest
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2569663
Exchange in the Monetary Economy
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2387105
Reconstructing the Quantity Theory (I)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1895268
Your model is meaningless if you can't show _within it_ how your token becomes accepted as money by the workers/households (and other firms).
History shows again and again that a private debt-based currency would spontaneously arise, with a commodity as its unit of account. Not your firm's tokens.
And, remember the thieving workers looting their firm? Someone would organize to stop them and all other looters eventually. Let's call them a “stationary bandit” for fun.
The stationary bandit would demand to be paid for the protection (protection racket?? depends on your leanings).
And the tokens they demanded to be paid in would take on value. And a credit-based system would form with them as the unit of account.
Again, all of this displacing any tokens from a firm.
Sound familiar?
Oh wait, you have all of this solved in your head. The firms will be the stationary bandit! Fine, get out and make that a reality if you want (might wanna read a little history before setting out. Just a suggestion ;)
Otherwise, it is all just your feverish imaginings.
Bitcoin would work also, IF THE WORLD were as the world in bitcoin supporters' heads. It is not though.
Again: Your model is meaningless if you can't show _within it_ how your token becomes accepted as money by the workers/households and other firms.
Meaningless.
This is relevant. And shows why your "firm money" would not work, for the same reasons crypto does not.
Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin
Clint Ballinger
Let us sum up:
1. MMT is bad theory
2. MMT is bad policy
3. MMTers are bad people
4. MMT has been replaced by the new macrofounded paradigm
5. Conclusion
MMT is another falsified economic theory. Its material/formal inconsistency is proven according to universally valid scientific criteria. Needless to emphasize that MMTers do not understand this, after all, they have not realized to this day that their foundational sectoral balances equation is mathematically false. In this respect, they are not different from their mainstream colleagues who have not realized for 140+ years that supply-demand-equilibrium is proto-scientific garbage.
MMTers are unable to follow the logical steps of proof and cannot accept refutation. They have never risen above the level of storytelling. Clint Ballinger, in particular, has not realized to this day that there is a difference between an argument and verbal diarrhea.#1
Get it, MMTers, you are refuted once and for all. Your sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false and has been replaced by (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.
Now, stop your desperate blathering and bury yourself in a footnote in the already over-embarrassing history of so-called economic thought.
Egmont Kakarot-Handtke
#1 The creation and value of money and near-monies
https://axecorg.blogspot.com/2017/12/the-creation-and-value-of-money-and.html
Clint Ballinger
As Keynes said, the proper starting point for economic analysis is the monetary theory of production. The elementary production-consumption economy consists of the household sector and the business sector which in turn consists initially of one giant fully integrated firm. Starting with the simplest configuration, money then evolves logically (NOT historically) as follows.
(i) The worker Y produces 5 pieces of stuff and gets at the end of the day a slip of paper saying: Firm X owes Mr. Y 5 pieces of stuff. Worker Y goes to the firm’s store, presents the slip of paper, takes the stuff, goes home and consumes all with his family. This repeats day after day. Worker Y has no reservations accepting the firm’s IOU but complains that it is a bit inconvenient that he has to personally go to the firm’s store and to identify himself.
(ii) The firm increases fungibility by changing the text on the IOU to Firm X owes the bearer of this slip of paper 5 pieces of stuff. Now, Mr. Y’s wife or children or anybody else can go to the firm’s store and get the stuff. Needless to emphasize that this opens the door to counterfeiting and that the firm has to take measures to prevent abuse.
(iii) Because the firm introduces the division of labor, nobody can tell any longer how much the individual worker has produced. The overall productivity increases and on the average each worker produces now, say, 20 pieces of stuff. The firm changes to paying wages. The text on the IOU changes to Firm X owes the bearer of this slip of paper 100 $. Worker Y goes to the store and buys 20 pieces of stuff for the price of 5 $ each.
(iv) The economy grows and the number of firms and products multiplies. The mutual acceptance of private IOUs becomes a complexity problem. Therefore, private IOUs are replaced by universally acceptable central bank IOUs. The text on the note says now The National Central Bank owes the bearer of this note 100 $. Each worker and each firm accepts central bank money. Central bank money is created with the firms’ wage payments and destroyed with the firms’ repayments which are equal to households’ consumption expenditures. The notes are backed by the business sector’s output. The real value of money is determined by the productivity, it holds W/P=R with W wage rate per hour, P price of one unit of stuff in $, R productivity stuff per hour.
(v) In the final step, notes are abolished and Worker Y gets at the end of the day the four characters 100 $ on his central bank account. He pays by swiping a card and authorizing the transactions. The central bank handles all transactions, i.e. paying wages and buying stuff.
(vi) The central bank/state can allow private banks to create fiat money and to carry out transactions.
It goes without saying that each step of the progressive abstraction of money to pure information processing requires institutional/legal precautions. The acceptance of IOU’s/fiat money is the precondition of doing business/participating in the economy. The alternative is working in the garden and bartering parts of output.
Taxation is NOT needed to get a monetary production economy going. The state is indispensable, though, for implementing the institutional/legal framework.
Egmont Kakarot-Handtke
Egmont writes: “private IOUs are replaced by universally acceptable central bank IOUs”
What makes them “universally acceptable”? ("legal tender" laws are not enough, unless the only way to pay fines and ________ {fill in the blank])
“Each worker and each firm accepts central bank money”
Do they? Why?
Noah Way
You say: “You just have to love how Egmont bashes Keynes and then uses him as the basis for bus economic analysis.”
Keynes saw the necessity of a paradigm shift#1 but he messed up the move from microfoundations to macrofoundations.#2 He has to be praised for the former and bashed for the latter. No contradiction here.
MMT has to be praised for debunking mainstream monetary theory but bashed for messing up macrofoundations.#3 No contradiction here.
Egmont Kakarot-Handtke
#1 “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight — as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (GT)
#2 Keynes and the logical brilliance of Bedlam
https://axecorg.blogspot.com/2015/10/keynes-and-logical-brilliance-of-bedlam.html
How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.com/2016/09/how-keynes-got-macro-wrong-and-allais.html
Keynes, the methodologist
https://axecorg.blogspot.com/2016/06/keynes-methodologist.html
What Keynes really meant but could not really prove
https://axecorg.blogspot.com/2016/05/what-keynes-really-meant-but-could-not.html
#3 Wikipedia and the promotion of economists’ idiotism
https://axecorg.blogspot.com/2018/07/wikipedia-and-promotion-of-economists.html
Clint Ballinger
You quote: “private IOUs are replaced by universally acceptable central bank IOUs” and ask “What makes them ‘universally acceptable’?”
With one firm, which is a logical limiting case, the creation/destruction of money according to the ‘needs of trade’ (Banking School term) in the form of private IOUs is no problem.
With multiple firms/products, the need for money changers arises if the worker of firm A wants to spend his wage=IOU of A on the stuff of firm B which pays its workers with B-IOUs. So, there has to be an intermediary exchange of A-IOUs against B-IOUs. This is a bit awkward and becomes prohibitive if the number of private money issuers increases.
So, if the state steps in and changes the monetary order within a certain geographical territory and issues public IOUs people rejoice because the transaction costs fall precipitously.
There are NO taxes needed to force public IOUs=fiat money upon the people because they appreciate the huge gains of transaction efficiency.
Problems with fiat money arise only with abuse/corruption, that is, with MMT’s deficit-spending/money-creation.#1
Egmont Kakarot-Handtke
#1 MMT is ALWAYS a bad deal for the 99-percenters
https://axecorg.blogspot.com/2017/12/mmt-is-always-bad-deal-for-ninety-nine.html
MMT is ALWAYS a bad deal for the 99-percenters
Please cite previous / existing implementations of MMT and their bad effects on the 99%.
If you can not demonstrate this factually you should not state it as a fact. FYI your opinion is not a fact. A scientist would know that. Ergo, you are not a scientist.
See how logic works? You should try it some time. Or maybe not, as it would blow up your academic self-aggrandizing fantasy universe.
Noah Way
You say: “Please cite previous / existing implementations of MMT and their bad effects on the 99%.”
MMT policy boils down to deficit-spending/money-creation. This policy is not new,#1, #2 only the progressive social fig-leaf and the permanence are new. Roughly speaking, MMT adds social deficit-spending to military deficit-spending. According to the macroeconomic Profit Law, i.e. Public Deficit = Private Profit, MMT’s permanent deficit policy amounts to a permanent free lunch for the Oligarchy, stealth taxation for the 99-percenters, and a heavily skewed distribution of income and financial wealth.#5
Roughly speaking, most of what is sick with the economy and in particular distribution is a direct or indirect result of the long-standing policy of deficit-spending/money-creation.#6
MMT’s social policy is just another political fraud and you are, wittingly or unwittingly does not matter, part of it.#7
Egmont Kakarot-Handtke
#1 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html
#2 Keynesianism as ultimate profit machine
http://axecorg.blogspot.com/2015/07/keynesianism-as-ultimate-profit-machine.html
#3 MMT, money printing, stealth taxation, and redistribution
http://axecorg.blogspot.com/2017/11/mmt-money-printing-stealth-taxation-and.html
#4 The profit effect of a Job Guarantee
http://axecorg.blogspot.com/2017/09/the-profit-effect-of-job-guarantee.html
#5 Profit and the decline of labor’s nominal share (I)
https://axecorg.blogspot.com/2017/08/profit-and-decline-of-labors-nominal.html
#6 Full employment through the price mechanism
https://axecorg.blogspot.com/2017/11/full-employment-through-price-mechanism.html
#7 MMT and the promotion of Wall Street socialism
https://axecorg.blogspot.com/2017/11/mmt-and-promotion-of-wall-street.html
Egmont: Why are there Firms in your model? Where do they come from? A pure consumption economy would be every individual consuming what they produce. So why are there firms at all?
Clint Ballinger
You ask: “Why are there Firms in your model? Where do they come from?”
Taken to its logical end, all evolutionary questions ultimately arrive at the Big Bang as first cause. However, for the purpose of analysis, usually a more recent event is taken as a logical starting point. In science, the premises of analysis are clearly stated as a set of axioms.
For example, the Walrasian program is “organized around the following hardcore propositions: HC1 There exist economic agents, HC2 …” (Weintraub)#1
Thus, the question “Why are there humans in your model? Where do they come from?” is not answered at all by neoclassical economists. Of course, it could be answered by any kindergartner with: because my parents had sex. However, instead of saying that humans come from the equilibrium of supply and demand of sex, economists cut the infinite regress short by axiomatizing “HC1 There exist economic agents”. Nobody, except perhaps Clint Ballinger, has any qualms with accepting the first neoclassical axiom. In fact, the trouble comes with the rest of microfoundations HC2 to HC6.
Likewise, the set of macrofoundations that fully replaces microfoundations is introduced by (A0): “The objectively given and most elementary systemic configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.”#2
This is how the firm comes axiomatically into existence: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)#3
Of course, one can always regress further back in the direction of the Big Bang. And if you were not so stupid/lazy you would have found out that this has already been done.#4, #5
Roughly speaking, the reorganization of multiple individual labor inputs to a phased division of labor/specialization results in a productivity increase. Remember Adam Smith’s story of the pin factory? The organizational entity that realizes the intricate division of labor for the production and marketing of stuff is called firm. In a second step, the firms that make up the business sector are more specifically defined as legal entities. Analysis proceeds from the simple to the complex.
Note that the logical origin of the firm is something quite different from the historical origin. Economic theory deals with the logical origin of the abstract entity firm. The historical evolution of the corporation in country X or Y is an entirely different matter.
Of course, most people prefer historical storytelling to axiom-based analysis. And this is why economics is still at the proto-scientific level. MMTers, for example, have not realized to this day that their sectoral balances equation is false. Needless to emphasize that the MMTer Clint Ballinger never asks where his incompetence comes from.
Egmont Kakarot-Handtke
#1 The creative destruction of Wren-Lewis
https://axecorg.blogspot.com/2016/01/lars-syll-creatively-destructs-wren.html
#2 True macrofoundations: the reset of economics
https://axecorg.blogspot.com/2017/05/true-macrofoundations-reset-of-economics.html
#3 Why economists know nothing
https://axecorg.blogspot.com/2016/12/why-economists-know-nothing.html
#4 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1946874
#5 Nietzsche, entropy, full employment, and NO class war
https://axecorg.blogspot.com/2018/06/nietzsche-entropy-full-employment-and.html
Egmont, you write “There are NO taxes needed to force public IOUs=fiat money upon the people because they appreciate the huge gains of transaction efficiency.”
But also “the money that has been created out of nothing has to be destroyed eventually.”
Destruction by taxation. Your money would not have value without taxation, in your own words.
Egmont
The business sector makes a profit and provides goods and services. You believe the business sector/(firms') profit comes from deficit spending and both deficit spending and business profit should be done away with via a 100% tax on business profit (which also gives value to your “currency”). You want to nationalize all businesses basically.
Yet you cannot even explain why there IS a business sector. In a pure consumption economy there would not be.
The “pure consumption economy” is made up of individuals consuming their own production. It would not have a business sector.
There is a reason there is a business sector. Private organizations can often produce more than the sum of all of its individuals' production.
How this increased production is distributed is a political question, not an economic question.
Your theory lacks even a theory of the firm. So right from the start it falls short.
It lacks a theory of why the gains in productivity should go to any group, whether workers or managers or owners.
Your _opinion_ is that it should all go to workers [one I happen to agree with in principle, with caveats regarding the way the real world works, innovation, risk, etc].
But it is only an opinion. Your toy model does nothing to show why any sector should or should not get “profits”. You have merely made a toy and interpreted it to support your pre-existing bias.
Dear Mr. Kakaroth,
I'm only a hobby scientist, but I've done a lot of research on the subject of economics and epistemology out of personal interest.
You're correct in assuming that methodological individualism fails, in so far "survival of the fittest" is a tautological principle. It is not falsifiable empirically. Karl Popper should have known better. But a lot of todays science is made up of half-truths.
There are no truth-conserving expansions of a deductive apparatus. Either I want truth (tautology), then my information about the real world doesn't change, or I want information about the world, then I cannot know whether it is true. Information per se is "problematic knowledge". People thus believe whatever makes them happy, and this is completely justified, because the goal of life is not truth, it is happiness. You cannot argue against happiness. THIS should be your most fundamental axiom.
Why do you think the "Law of Large Numbers" holds true in statistics, if not for karmic resonance, connectedness of everything?
You need the mathematics of non-well-founded sets to explain, as you put it, “the logical origin of money”. This implies paradoxical reasoning, for instance “it is universally known that everyone trusts money and only trusts money.” According to G.W.F. Hegel “The universal is the beginning”. The survival instinct (the Robinson Thought Experiment) cannot explain the emergence of markets and money, only the urge to sexually reproduce can. Thus prostitution as world's "oldest business". Also, if you read german, the following book (by a mathematician) might be helpful, if only to contrast with your view: "Laszlo Méro. Die Biologie des Geldes. Darwin und der Ursprung der Ökonomie". Rowohlt Taschenbuch Verlag, 2009.
I have no doubt that one day, you will get the scientific recognition you deserve. Not now though. You’re bold, fearless… and obviously unexperienced. Your general argumentation skills and understanding of human interaction are not on par with your technical economics skills. As a matter of fact, you have ill-defined your study object. There's no such thing as "the economy" (altough capitalism is real). "The economy (TM)" is just a codeword for the interests of the financial oligarchy. In the real world the following relationship holds true: 1. Sex > 2. Survival, Social Recognition > 3. Truth. How old are you? 30? 35? You have not yet understood reversed psychology. If you chase after woman, they will repel you. The more you cry wolf (‘urgent’), the less people will listen to you. Some folks believe the Fukushima nuclear accident is an ongoing “extinction level event”. Yet others claim that nuclear energy is completely harmless. The reason for this discrepancy of opinions lies ultimately in relativity theory, quantum mechanics and Gödel’s incompleteness theorems. While it is true, that Gödel’s theorems are often abused and misquoted by non-mathematicians, it is absolutely not true that they bear no relevance to economics. Since Gödel’s original incompleteness proof is completely unintelligible for non-trained mathematicians, I recommend you to study Gödel’s philosophical papers, the Hegelian “Science of Logic” and George Spencer-Brown’s “Laws of Form” instead (as I did). Ludwig Wittgenstein might help as well. You simply cannot subsume all of philosophy under “story telling”. Or at least, you will then find many great scientists and mathematicians disagreeing with you. Also, the conspiracy theory about the origins of Marxism you spread on your Website is nuts. Have some respect for Karl Marx' visionary thought!
Yours sincerely,
Dr. Wintermute
P.S: I've quoted you in my paper “Money, sex and incompleteness” and argued that you’re theory – although more reasonable than the mainstream – may not be used to predict the end of capitalism. I sent you the password to access the premium content on the Website in an e-mail.
http://analytischesozialkritik.blogsport.eu/files/2018/11/money-sex-and-incompleteness-sm-2018-9.pdf
Clint Ballinger
You hallucinate: “But also ‘the money that has been created out of nothing has to be destroyed eventually.’ Your money would not have value without taxation, in your own words.”
In the most elementary case, the central bank creates money out of nothing as deposits for the business sector on the liability side of its balance sheet which are exactly balanced by overdrafts of the business sector on the asset side.#1, #2
The deposits are then transferred as wages to the household sector.
The deposits then return to the business sector because consumption expenditures are, for a start, equal to wage income.
The return of the deposits amounts to repayment and successively reduces the overdrafts of the business sector until both sides of the central bank’s balance sheet are again zero.
Money (= central bank deposits) has been created and destroyed by the autonomous transactions between business and household sector. No taxes are involved. The real value of money is determined by the productivity of current production, i.e. W/P=R, NOT by taxation.
Egmont Kakarot-Handtke
#1 The Fisher Effect ― another piece of nincompoop-economics
https://axecorg.blogspot.com/2018/06/the-fisher-effect-another-piece-of.html
#2 MMT: Just another political fraud
https://axecorg.blogspot.com/2018/04/mmt-just-another-political-fraud.html
Clint Ballinger
You hallucinate: “The business sector makes a profit and provides goods and services. You believe the business sector/(firms’) profit comes from deficit spending and both deficit spending and business profit should be done away with via a 100% tax on business profit (which also gives value to your ‘currency’). You want to nationalize all businesses basically.”
I do not “believe” that the business sector/(firms’) profit comes from deficit spending but I PROVE that Public Deficit = Private Profit. A fact that is deliberately obfuscated by MMTers.#1
I do not “believe” that “business profit should be done away with via a 100% tax on business profit. You better re-read my ‘The Third Way: Towards the happy Zero-Tax Economy’#2 were the feasibility of a zero-tax economy is demonstrated. This logical limiting case shows also that the value of money does NOT depend on taxation because taxes are zero.
To show the feasibility of a zero-tax economy is NOT to propose 100% taxation of profits. If you do not understand anything do not recount it in your confused Pidgin but simply post a link to the original. This is a tried and tested method to exclude misrepresentation.
You say: “There is a reason there is a business sector. Private organizations can often produce more than the sum of all of its individuals’ production.” Yes, welcome to economics, this is common knowledge at least since Adam Smith’s pin factory. And yes, I have dealt with the productivity effect of collaborative production elsewhere.#3
You say: “How this increased production is distributed is a political question, not an economic question.” No, in the elementary production-consumption economy holds W/P=R. By consequence, any productivity increase translates directly into a real-wage increase. Take notice that profit of the business sector as a whole does NOT AT ALL depend on productivity.#4 This is the Fallacy of Composition, the mass grave of imbeciles.
And so your hallucinations and misrepresentations go on and on. Every single argument of yours is false and has already been refuted elsewhere. Any smart kindergartner can google it and make up their own mind.#5
MMT is refuted. MMT is a political fraud. MMT is scientifically indefensible. Your senseless filibuster only confirms what everybody knows already.
Egmont Kakarot-Handtke
#1 MMT and the magical profit disappearance
http://axecorg.blogspot.com/2017/08/mmt-and-magical-profit-disappearance.html
#2 The Third Way: Towards the happy Zero-Tax Economy
https://axecorg.blogspot.com/2018/06/the-third-way-towards-happy-zero-tax.html
#3 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1946874
#4 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741
#5 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html
The only thing Egmont has convinced anyone of is his own persistently arrogant stupidity.
Reference: Dunning-Kruger Effect.
Egmont writes "All that has to be done is to distribute the full amount of monetary profit, i.e. Qm=G, to the...Sovereign."
That is a 100% Tax on profits.
You are distributing profit to your political preference. Your "economics" is _completely_ political.
And that tax is what drives your currency. Without it it would have no value (it would inflate away its own value).
In your system, your currency is driven by taxes,
and in your system, politics not "science" rule,
where you make the politically founded choice to tax profits and make sure all gains from production go to workers.
Sounds nice except you do not take into account any of the higher aspects of the economy that feed back into whether there are firms at all (you assume them in to existence), why there is growth at all, and of course, your politics (which found your system despite your protestations).
Egmont's "pure production" little toy model has taxes driving currency and is deeply political (Marxist).
Clint Ballinger
You say: “Egmont writes ‘All that has to be done is to distribute the full amount of monetary profit, i.e. Qm=G, to the...Sovereign.’ That is a 100% Tax on profits.”
Profit distribution and taxation are different things. The usual procedure is as follows: (i) the firm calculates its profit at the end of the year, (ii) a decision has to be made whether to distribute all or part of the profit to the shareholders or to retain it, (iii) the dividend is then paid out to shareholders. The total amount of distributed profit is given by Yd=DN with D dividend and N number of shares.
The shareholders are either private persons or other firms or pension funds or charitable trusts or hedge funds or foreign countries, you name it.
It may also happen that local/regional/central government entities are shareholders. In this case, “the state” gets a dividend. This, though, is still profit distribution and NOT taxation. As always, Clint Ballinger gets the essentials of economics wrong.
Retarded MMTers do not realize it, but the Zero-Tax economy is the logical implication of MMT principles. MMT says that taxes are not needed to fund spending. So, let’s do away with it! The budget deficit G−T is then equal to government spending G because of T=0. This is maximum deficit-spending/money-creation, the implicit ideal of MMT.
According to the axiomatically correct macroeconomic Profit Law, it holds Public Deficit = Private Profit, i.e. Qm=G. The business sector makes the maximum profit because the budget deficit is maximal.
Now let us assume for simplicity that profit is fully distributed to the shareholders and that the firms are fully owned by the Oligarchy then, clearly, we have a 100% government feeding of the Oligarchy. That is an economic perversion. To my knowledge, no constitution in the world defines the role of the state as feeding the Oligarchy.
This logical limiting case, though, is the implicit ideal of MMT policy guidance. No problem with this, but MMTers should not call themselves Progressives who care and fight for the people.
However, there is another MMT principle that can be applied: The government can create money out of nothing and buy anything that is for sale.
So, let the government buy all shares of the business sector. Now, the government is the sole shareholder and receives distributed profits. In the 100% case, distributed profit Yd is equal to the public deficit G. There is NO taxation. The government as shareholder gets a dividend. Dividends are NOT taxes.
Although the Zero-Tax economy does not violate any MMT principles, MMTers do not like it. The Zero-Tax economy proves that taxes do NOT drive money and do NOT give value to the currency because of T=0. In addition, as agenda pushers of the Oligarchy, MMTers want profits to be distributed to the Oligarchy and not the state. MMTers need the state only for deficit-spending.
The question is, though, if the government can buy anything with self-created money according to the fundamental MMT principle why should it not buy the stock market?
The economist as a scientist is absolutely indifferent about profit distribution or any other political issue because he knows that this is ultimately an institutional decision of the Legitimate Sovereign. The economist is NOT the Legitimate Sovereign. MMTers, too, are NOT the Legitimate Sovereign but creatures from the proto-scientific gutter.
Egmont Kakarot-Handtke
The purposes of taxes is not to provide operating revenue for the government, which can create unlimited amounts of sovereign currency. The purpose of taxes is to regulate the economy and behavior.
Example: decreases in the money supply are historically linked to recessions, while increases in the money supply are historically linked to economic booms.
Example: increasing the tax on cigarettes results in a reduction of the number of smokers.
Egmont's myopic focus on "business sector profit" ignores social spending (much of it direct to individuals) that accounts for some 50% of spending in the US. Therefore his model is ill-considered, incomplete and unfounded in basic reality. And that's just one of many conditions that he fails to incorporate, acknowledge, or understand.
Egmont's failure to address any challenges to his bullshit with anything other than "MMT is fraud", insults, and links to his own writings (which are just more of the same) clearly demonstrate that the only proven fraud here is Egmont. Egmont's claim of bad science by economists is "proven" by his own bad science.
Which is not to say that other economists are correct - just that Egmont is not, and is unable to demonstrate a consistent, logical case for anything except his own persistent arrogance and ignorance, which he dogedly perpetuates across the Internet in hundreds of inane, long-winded, self-referencing, and insulting blog posts. A Google search returns volumes of these as well as a multitude of challenges to him that he rebuffs with repetition of his unsupported claims and insults to everyone who disagrees with him. He is a legend in his own small mind, creating a fantasy world of superiority in the shadows of his parent's basement.
My only question for Egmont is this: does your mommy know you're using her computer?
Noah Way
In economics, psychobabble does not help. Dunning-Kruger does not help. Only proof counts. Refute this
False (I−S)+(G−T)+(X−M)=0 MMT,
true (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.
Egmont Kakarot-Handtke
Once again, Egmont refuses to address any challenges to his pustulations - see this thread for a multitude of them. If something does not fit into Egmont's imaginary universe he simply ignores it and repeats the same nonsense, as if repetition creates truth.
To answer his challenge:
TRUE Egmont = Idiot. The proof is in everything he has written.
There is no "profit law". Every film company on the planet could make a movie in a one year period that flops and costs more than it earns. The same goes for popular music and clothing. Fashions change and the public decides what it wants based upon its purely subjective preferences and whims.
There is nothing to argue about here. There simply is no "profit law".
egmont has made the whole economy a firm to avoid taxes, as if taxes and not real resources matter. He has reinvented Coase, Bravo. As with Pasinetti, he has the remarkable ability to "discover" and claim as new what has already been written decades ago. Coase and related literature already developed a toy theory of the firm. Egmonts tiny toy model is so obvious it is hilarious he thinks it is either novel or useful.
Every film company on the planet could make a movie in a one year period that flops and costs more than it earns. Bob Roddis
But what if the most popular movies of all time happened to be made in the same year?
Should any of them be deemed a "mal-investment" if, for some easily preventable macro-economic problem such as the monetary sovereign is running a budget surplus, there is insufficient aggregate profit for all of them?
Or if 20 perfectly good dogs are sent to hunt for only 5 bones, will you fault 15 of them for not finding one?
Hence Austrians would create needless failure and misery.
How is that not detestable?
But what if the most popular movies of all time happened to be made in the same year?
So what? The people that made the movies accurately predicted and understood consumer preference. if the movies failed, the producers failed to properly predict and understand consumer preference. There is still no profit function.
Mal-investment refers SPECIFICALLY to investment decisions which are based upon interest rates and anticipated sales and prices which suggest a higher amount of saved wealth and consumer preference for certain lines of products than is actually the case. This is the result of an artificial increase in credit over the amount and direction of voluntary lending of actual savings of the lenders which artificially lowered interest rates and raised prices and apparent wealth in an unsustainable configuration. It is most pronounced in complex and long term projects. The Keynesian "cure" is messing around with a problem that does not otherwise exist but for the "cure" while causing the problem that does.
Movie producers who incorrectly predict consumer preference is not an example of mal-investment in the Austrian sense.
"which artificially lowered interest rates"
Rates can only be artificially propped up (raised). The natural rate of interest for the unit of account (whether gold or tax credits) is zero; the market rate for "money" is whatever the market leads to and should not be manipulated by the government. When the base rate IS manipulated, it is always manipulated upwards (from the natural zero rate). Austrians are correct the government should not prop up the base interest rate. Again, the interest rate on the unit of account, whether a commodity measure such as gold or the tax-credit, is zero and should not be propped up artificially by the government, and the market should set the rate for borrowers and lenders.
@Clint - Excellent post.
Roddis 'The Keynesian "cure"' ..??? Interest rate policy is not the "Keynesian cure" and is actively opposed by most who understand MMT. MMTers would happily agree with Austrians that interest rate manipulation is at best not useful and most likely harmful, esp in the long run as Austrians would argue.
The natural rate of interest for the unit of account (whether gold or tax credits) is zero
That is nonsense. There is no basis in fact or logic for that assertion. The "natural" or unimpeded rate of interest will always approximate the average rate of profit. People with real savings can buy stock or lend money. Interest is ultimately paid out of profits. Loan payments have priority over stock dividends but are fixed. With stock, you can lose everything or make really big gains. You take your chances.
So you earn interest on gold do you? You are confusing the market rate of investment w the base rate of currency.
tax-credits replace gold in modern systems, and their natural rate is the same
tax-credits replace gold in modern systems
No taxes means no tax credits. Further, what business is it of the government to swipe someone's gold or to infringe upon their right to exchange it?
So you earn interest on gold do you?
If you can lend gold and thereby earn interest on the loan, why wouldn't one do that?
You earn interest on saved gold?
Bob Roddis
You say: “There is no ‘profit law’. Every film company on the planet could make a movie in a one year period that flops and costs more than it earns. … There is nothing to argue about here. There simply is no ‘profit law’.”
Take notice that the Profit Law, i.e. Qm=Yd+(I−Sm)+(G−T)+(X−M)#1, is a macroeconomic relation. Needless to emphasize that (i) a single firm on the microeconomic level can make either profit or loss, and (ii), that the business sector as a whole can make either profit or loss. So Profit Law is only an abbreviation of Profit/Loss Law.
Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.#2
There is nothing to argue about here: (i) you do not understand the difference between the macro and the micro level, (ii) you run straight into the Fallacy of Composition, (iii) you cannot read a simple equation.
You are even more stupid than Clint Ballinger and Noah Way put together. Who would have thought that this is possible?
Egmont Kakarot-Handtke
#1 Wikimedia, AXEC Profit Law
https://commons.wikimedia.org/wiki/File:AXEC143.png
#2 Mathematical Proof of the Breakdown of Capitalism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375578
Clint Ballinger
You hallucinate: “He [Egmont] has reinvented Coase, Bravo.”
I reinvent nothing but start axiomatically with (i) there exists a household and a business sector, (ii) the household sector consists of households, (iii) the business sector consists of firms, (iv) at the beginning, the business sector consists of one giant firm.
Coase was committed to methodological individualism which starts with the axiom HC1 There exist economic agents. Because of this, he had to explain the firm. With his phony explanation, Coase goes down the scientific drain together with the whole of Walrasianism.
Microfoundations is a failed approach as even you should have realized by now. This requires a paradigm shift from microfoundations to macrofoundations. And macrofoundations start with (A0) There exists a household and a business sector.
By the way, MMT is macrofounded. The sectoral balances equation (I−S)+(G−T)+(X−M)=0 is a macroeconomic relation, although a logically defective one. It may have escaped your attention, but the elementary analytical units of MMT are sectors and not individuals. MMT neither needs nor has a theory of the firm but simply postulates it. Therefore, to cite Coase in defense of MMT is a bit gaga.
Egmont Kakarot-Handtke
The natural rate of interest for the unit of account (whether gold or tax credits) is zero; Clint Ballinger
How can the natural interest rate of fiat be 0% when the demand for fiat is artificially suppressed in that only depository institutions, i.e. "the banks", can use fiat in safe, inherently risk-free, convenient account form at the Central Bank? While citizens are limited to unhygienic, subject to theft and robbery, totally inadequate for modern commerce, physical fiat, aka "cash?"
Or are government privileges for banks your definition of natural, Clint?
Surprise, surprise. Egmont proves his point once again with insults and utter nonsense.
Economics is nor science. The pseudoscience of economics (a.k.a. the silly science) is based on an artificial construct that does not act according to physical laws but rather to the ever-changing (dynamically, intentionally, accidentally) social context that defines it.
Egmont would undoubtedly have more success if he focused on mathematical equations defining the emotions of love and hate. Or not.
Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.#2
That allegation is totally baseless and a bunch of nonsense. There are no facts or evidence from the real world to support it. Therefore......
There is nothing to argue about here
I reinvent nothing but start axiomatically with (i) there exists a household and a business sector, (ii) the household sector consists of households, (iii) the business sector consists of firms, (iv) at the beginning, the business sector consists of one giant firm.
Axiom: a statement or proposition that is regarded as being established, accepted, or self-evidently true.
Your statements are nothing but a proposed model, a model that has no relationship to reality and which is not helpful in understanding reality. Your model is certainly is not "axiomatic".
This is the result of an artificial increase in credit over the amount and direction of voluntary lending of actual savings of the lenders which artificially lowered interest rates and raised prices and apparent wealth in an unsustainable configuration. Bob Roddis
Certainly, the Central Bank should not buy from, lend to, pay interest to or in any other way create fiat for the private sector - in order to not violate equal protection under the law.
However, if you really want to protect savers, it makes no sense to force citizens to use one bank, credit union, or another or else be limited to mere physical fiat, coins and bills, since that vastly increases the ability of banks, etc. to safely (for them) create new bank deposits.
Instead, you would want to make bank runs as convenient and safe as possible by allowing all citizens, at least, to have fiat checking or debit accounts at the Central Bank or Treasury itself so bank runs would not have to involve personally dangerous physical fiat withdrawal.
Bob Roddis
You quote: “Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.” and exclaim: “That allegation is totally baseless and a bunch of nonsense.”
Let us reduce the Macroeconomic Profit/Loss Law, in short, the Profit Law, to Qm=I−Sm. This equation says, as long as the business sector’s investment expenditures I are greater than the household sector’s saving Sm, the monetary profit of the business sector Qm is positive. If the growth of the capital stock, expressed by I, slows down, macroeconomic profit falls and may even turn negative, i.e. become a loss. This means, firms break down, unemployment increases, and the banking system has to write down debt, which, in turn, may lead to a banking crisis. The process is self-reinforcing and if this lasts longer, the economy breaks down. Every recession gives you a foretaste of what happens if the algebraic sign of Qm switches from positive to negative.
So, roughly speaking, if growth ends, that is, if I goes to zero, the market economy will break down. This is NOT a “baseless allegation” but follows straight from the Profit Law which consists of measurable variables and is therefore testable. Your problem is that you do not know how the economy works and what science is. This you have in common with Clint Ballinger and Noah Way.
Egmont Kakarot-Handtke
Bob Roddis
You say: “Your statements are nothing but a proposed model, a model that has no relationship to reality and which is not helpful in understanding reality. Your model is certainly is not ‘axiomatic’.”
My guess is that you have looked up the word axiom five minutes ago in some folk encyclopedia.
I am not going to explain the relationship between a set of economic axioms, a model, and reality to a hopeless Austrian blatherer. All the more so because this information has been made publicly available long ago.#1, #2, #3, #4, #5
Axiomatization is the first step of any scientific analysis: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; …). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper)
Needless to emphasize, that “statements belonging to the theoretical system” must be empirically testable.
Economics has to be built upon clearly stated premises, i.e. upon a set of axioms.
By the way, what are your axioms? You have none! Yeah, soapbox economists just blather off-the-cuff and need no bloody axioms.
Egmont Kakarot-Handtke
#1 True macrofoundations: the reset of economics
https://axecorg.blogspot.com/2017/05/true-macrofoundations-reset-of-economics.html
#2 How to restart economics
https://axecorg.blogspot.com/2016/01/how-to-restart-economics.html
#3 Don Lars and the axiomatic windmill
https://axecorg.blogspot.com/2017/07/don-lars-and-axiomatic-windmill.html
#4 AXEC blogspot, Axioms
https://www.axec.org/axioms
#5 Wikimedia, New Foundations of Economics
https://commons.wikimedia.org/wiki/File:AXEC137.png
FYI Bob, Murray Rothbard said bank runs were GOOD since they keep banks honest.
I agree.
Then why wouldn't you want bank runs to be as safe and convenient as possible and not require the citizens to make dangerous physical fiat withdrawals when they might instead simply transfer deposits from commercial banks, credit unions, etc. to their inherently risk-free accounts at the Central Bank or Treasury via check or debit card?
Axioms only apply to logic and mathematics. As such science does not have any axioms.
The primary point is that the context here - economics and the mathematical universe - are completely contrived and only exist in the imagination. They are simply fabrications of the mind that require no link to the real world.
So what Egmont is stating is his own hypothesis, the principle (and seemingly only) point of which is that all other hypotheses are wrong. What's hilarious is that this is undoubtedly true for Egmont's economic theories (as well as others), but not for any of the reasons Egmont states.
Noah Way
You say: “Axioms only apply to logic and mathematics. As such science does not have any axioms.”
You are dumb as a bag of hammers. Newton’s Principia starts with the famous 'Axioms, or the Laws of motion'.
Egmont Kakarot-Handtke
Noah Way
Ask you scientific gutter buddy Bob Roddis, even the Austrians apply axiomatization: “The action-axiom is the basis of praxeology in the Austrian School, and it is the proposition that all specimens of the species Homo sapiens, the Homo agens, purposely utilize means over a period of time in order to achieve desired ends.”#1
Egmont Kakarot-Handtke
#1 Wikipedia, Action axiom
https://en.wikipedia.org/wiki/Action_axiom
Newton's Laws are not axioms. They were theories that became laws because they have been supported by rigorous and repeated testing.
Once again (repeated for those slow of wit): science deals with the physical world, not abstract artificial constructs such as economics.
Social science is an oxymoron. You on the other hand are just a moron.
Roddis wrote “No taxes means no tax credits. Further, what business is it of the government to swipe someone's gold or to infringe upon their right to exchange it? “
Bob – 1) I didn't say anything about “no taxes”. Yes, there would be tax, so yes, the unit of account is tax-credits.
2) No one said anything about taking gold. You can buy all the gold you want. And no one is taking your gold. And you can exchange gold you want.
And no, gold in a safe does not earn interest. Nor should tax credits. The gov should not prop up interest rates. And yes, you are confusing the market rate of investment w the base rate of currency.
Noah Way
You say: “Newton’s Laws are not axioms. They were theories that became laws because they have been supported by rigorous and repeated testing.”
Good, lets put methodology aside and have an experimentum crucis. This is my challenge to MMTers, refute this empirically:
False (I−S)+(G−T)+(X−M)=0 MMT,
true (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.
Egmont Kakarot-Handtke
Egmont – Coase set out the Theory of the Firm in 1937. Probably at least six decades before your trivial thoughts. It and the ideas around/after it encompass your idea of the “whole economy as one firm” and much much more. Just the wikipedia entry on it alone is more meaningful than your entire AXEC project in its entirety.
You waste your time .You should listen to others and try to expand your ideas on profit. There is a grain of something interesting there, which is why I bother at all. But you refuse to develop the interesting bits.
Andrew - scroll back through my old blog On good urbanism, sane economics, & problems in the social sciences and you will see what I think about banks, banking, money etc
Clint,
Warren Mosler's assertion The hard lesson of banking history is that the liability side of banking is not the place for market discipline. is false since the following conditions, at least, for banks to be 100% private with 100% voluntary depositors have never existed at the same time:
1) Inexpensive fiat ONLY so that all citizens may use it.
2) All citizens may have checking/debit(later development) accounts at the Treasury or Central Bank itself. Why should citizens be limited to mere physical fiat?
3) Sufficient spending or equal fiat distributions to all citizens by the monetary sovereign to preclude price deflation - an obvious duty given how detrimental risk-free rewards from fiat hoarding are to economic progress (Mathew 25:14-30). Note that fiat distributions don't require big government but only inexpensive fiat and accounting.
4) Since the debt of a monetary sovereign is inherently risk-free, it should yield no more than 0% MINUS overhead costs and that's for the longest maturity sovereign debt with shorter maturities costing more and fiat itself costing the most* (most negative interest).
5) No lender or asset buyer of last resort.
6) No government provided deposit insurance or other privileges for the banks.
Hence the liabilities of the banks toward the non-bank private sector have always been a shame and hence genuine liabilities cannot be said to have failed.
Indeed, the hard lesson of banking history for Mr. Mosler is that monetarily sovereign governments have NEVER needed banks but that banks have always enjoyed explicit or implicit privileges from monetarily sovereign governments.
*Not withstanding that citizens have an inherent right to use their Nation's fiat FOR FREE up to a reasonable account limit since some risk-free liquidity and savings are legitimate.
Moreover, with 100% private banks with 100% voluntary depositors, we should not care if a single bank or EVERY bank failed since they would no longer hold the economy hostage via a single payment system (besides physical fiat, aka "cash") that must work through them.
Instead, an additional, always liquid, inherently risk-free payment system consisting of individual citizen, business, industry, State and local government, etc. accounts at the Central Bank would allow the economy to carry on regardless.
Correction:
Yes, the liabilities of the banks toward the non-bank private sector are a shame but I meant to say "sham." Pardon me, please.
Andrew, I only have time to skim at the moment, but I came to all this from a money/anti-bank background. Irving Fisher , Steve Keen etc were big in my development. Some of my posts explore those issues. I think you would find much of interest. Cheers 😊
•pro gov money
Btw, low interest rates in fiat would be undeniably good but for HOW they are produced:
BAD WAY TO PRODUCE LOW INTEREST RATES IN FIAT:
Largely limit fiat use to depository institutions via government privileges for bank deposits - hence greatly reducing the DEMAND for fiat.
GOOD WAY TO PRODUCE LOW INTEREST RATES IN FIAT:
1) Maximize the citizens' DEMAND for fiat by allowing them to have accounts at the Central Bank or Treasury itself and by eliminating all other privileges for depository institutions. By itself, this would greatly INCREASE interest rates in fiat.
2) All fiat creation beyond normal deficit spending by the monetary sovereign shall be via equal fiat distributions to all citizens to their individual citizen accounts at the Central Bank or Treasury.
3) Negative interest to be applied to individual citizen accounts at the CB or Treasury above a certain limit to encourage citizens to lend and invest once their own legitimate risk-free liquidity and savings needs have been met.
4) Negative interest to be applied to all other private sector accounts at the CB or Treasury since these have no inherent right to use fiat for free. This shall also encourage lending and thus lower interest rates.
The above SHOULD satisfy the Austrians since it does not violate equal protection under the law when low interest rates are produced.
Noah Way, Clint Ballinger, Bob Roddis, etcetera
Let’s sum up before 2018 ― the year when MMT was refuted on all counts ― ends. MMT is materially and formally inconsistent. The arguments of all sides are before everyone’s eyes for evaluation.
It has been proven:
• MMT is bad science,
• MMT is bad policy,
• MMTers are bad people.
MMT is out of science. MMT is political agenda pushing. MMT academics are scientifically incompetent. MMTers deceive the general public about the ultimate effects of their policy on distribution. MMT policy is not progressive as claimed, i.e. for the benefit of the ninety-nine-percenters, but for the benefit of the one-percenters.
Egmont Kakarot-Handtke
Economics is out of science. Economics is political agenda pushing. Economic academics are scientifically incompetent (look in the mirror). Economists deceive the general public about the ultimate effects of their policy on distribution. Economic policy is not progressive as claimed, i.e. for the benefit of the ninety-nine-percenters, but for the benefit of the one-percenters.
There, fixed it for you.
Egmont, you haven't proven anything except impenetrably dense and obnoxiously persistent.
Egmont, this excellent article shows why profit can be bad and what policies are needed to deal w it and why. You should love it. What are you doing to support what your research says are good ideas? (now lets watch as Eg attacks an.article that he should support)https://medium.com/radical-urbanist/basic-income-isnt-the-solution-it-s-a-band-aid-on-a-broken-system-eb7896e2ca15
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