Tuesday, May 21, 2019

Bill Mitchell – Japan Finance Minister getting paranoid about MMT

The debates about MMT are expanding. There are weird offerings springing up each day. I read something yesterday about how MMT is really just Marxism in disguise and therefore a plot to overthrow entrepreneurship. Well in a socialist society there will still be a monetary system! Most of the critiques just get to their point quickly – MMT is about wild printing presses undermining the value of the currency! That should summarise 25 years of our work nicely. But there are also other developments on a global scale. A few weeks ago there was a lengthy debate in the Japanese parliament during a House of Representatives Committee hearing considering whether the October sales tax hikes should continue. The Finance Minister, Taro Aso was confronted by Committee members who indicated that it was useless denying that Modern Monetary Theory (MMT) was some abstract theory that was wrong because the Japanese are already “doing it”. The Minister told the hearing that MMT was dangerous and would undermine financial markets if anyone said otherwise. An interesting discussion took place. It highlighted some key features of MMT. It also indicates that progress is being made in the process of education aimed at giving people a better understanding of how the monetary system that we live within operates....
Bill Mitchell – billy blog
Japan Finance Minister getting paranoid about MMT
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


AXEC / E.K-H said...

Just one more day: How MMT delays the breakdown of Capitalism
Comment on Bill Mitchell on ‘Japan Finance Minister getting paranoid about MMT’

MMT claims to be a theory, i.e. a materially/formally consistent mental representation of reality, and NOT a policy. “MMT should not been seen as a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. As I have noted regularly, MMT is rather a lens which allows us to see the true (intrinsic) workings of the fiat monetary system. … The point is that MMT is agnostic about policy bar its preference for an employment buffer rather than an unemployment buffer to discipline inflation. … In general, it makes no sense to talk about an ‘MMT-type prescription’ or an ‘MMT solution’. To make that MMT understanding operational in a policy context, a value system or ideology must be introduced. MMT is not intrinsically ‘Left-leaning’.” (Mitchell)

This is a futile attempt to obfuscate MMT’s true agenda.

Scientifically, MMT is refuted on all counts.#1 MMT is axiomatically false, just like mainstream economics. However, there are degrees of falsehood and it is pretty obvious that MMT is superior to mainstream economics for the simple reason that it is impossible to surpass the idiocy of mainstream economics.#2 In methodological terms, economics has to be based on macrofoundations but mainstream economics is based on microfoundations. The bad luck of economics is that Keynes messed up the Paradigm Shift from microfoundations to macrofoundations.

So, Bill Mitchell is right: “The conclusion is obvious. … It is clear that the mainstream macroeconomic explanation of the relationships between fiscal deficits, interest rates, bond yields and inflation rates is unable to adequately capture the real world dynamics in Japan. Such a categorical failure to provide an explanation suggests that the mainstream theory is seriously deficient.”#3

Mainstream economics claims to have proved that the free market economy has some very desirable properties, first and foremost optimality, efficiency, and stability. Now, General Equilibrium Theory is based on microfoundations, which is to say that it is proto-scientific garbage and proves NOTHING. From axiomatically correct macrofoundations follows that the market economy is intrinsically unstable and that it will eventually break down. The ultimate reason lies in the macroeconomic Profit Law which is given by Q=Yd+(I−S)+(G−T)+(EX−IM).

The reduced macroeconomic Profit Law Q=(I−S)+(G−T) tells one that profit in the monetary economy is positive (i) if business sector investment I is greater than household sector saving S and (ii) if the State runs a deficit, i.e. (G−T) is greater than 0.

Case (i) is characteristic for early Capitalism and case (ii) is characteristic for late Capitalism. Currently, the so-called free market economy is on the full life support of the State. The macroeconomic Profit Law boils down to Public Deficit = Private Profit and thus the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. Capitalism will break down as soon as the sum of (i) and (ii) turns negative. The same holds for Socialism.#4

See part 2

AXEC / E.K-H said...

Part 2

As the example of Japan shows, the State and its Oligarchy are literally forced to run deficits in order to keep the economy going for just another day. However, it would certainly not be such a good idea to cause panic among the public in general and investors, in particular, by admitting that the government is riding a tiger and cannot dismount. This means that the government actually follows the MMT policy of permanent deficit-spending/money-creation while denying it publicly: “Money, Monetary Theory … MMT for short … this is often spoken about now by politicians, various people … I don’t think we need to explain the theory here … there are many people in the US – many officials including Larry Summers who are against it … But to do it in Japan … and think about that kind of reaction the market would have … I do not intend to make Japan an experimental site for it.”

This is the political fraud of the government. The political fraud of MMTers consists of claiming that MMT policy is for the benefit of WeThePeople.#5 This is correct only in the trivial sense that everybody suffers if the economy breaks down. This, though, does not change the fact that MMT is NOT science but political agenda pushing for the Oligarchy. In this respect, MMT is not different from mainstream economics. MMTers are no exception to the verdict that economists are either stupid or corrupt or both.

The fact of the matter is that the so-called free market economy and its Oligarchy are already for a long time on full life-support of the State and this is something that cannot be openly admitted. The MMT policy of permanent deficit-spending/money-creation prolongs the situation, it does NOT really solve any social/economic problems but only shifts them beyond the time horizon.#6

Egmont Kakarot-Handtke

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

#2 To this day, economists have produced NOT ONE textbook that satisfies scientific standards

#3 MMT is better than mainstream economics but still not good enough

#4 No future for Socialism and Capitalism

#5 MMT and the Green New Deal: Where is the snag?

#6 Some nasty MMT surprises behind the time horizon

S400 said...

Where’s part 3? I love part 3.