Wednesday, May 8, 2019

Bill Mitchell — US Congress hypocrites lose the plot

The way in which Modern Monetary Theory (MMT) has become politicised and misrepresented is quite something. The critics have all fallen into the same pattern. They rehearse a few statements that they claim represents what MMT is about, and, which they know will shock people who read and/or listen to them to conclude that the proponents of MMT understandings are crazy. A whole host of wannabees are now jumping on the bandwagon. And last week, 5 Republican Senators in the US Congress tabled a bill which claims it is “the duty of the Senate to condemn Modern Monetary Theory and recognizing that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation”. For a start, these goons haven’t even cottoned on to the fact that one cannot implement Modern Monetary Theory (MMT) – they are surrounded by it, every day of their lives. But then if they had got that far, they would have also realised that the rest of their argument in the draft legislation is equally ridiculous. We are making progress though – and the more they come out of the woodwork the better. So far not a blow has stuck....
Bill Mitchell – billy blog
US Congress hypocrites lose the plot
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...

Settling the MMT―Inflation issue for good
Comment on Bill Mitchell on ‘US Congress hypocrites lose the plot’

Bill Mitchell quotes five Republican Senators in the US Congress as proclaiming it is: “the duty of the Senate to condemn Modern Monetary Theory and recognizing that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation”.

Science is something quite different from politics and Senators have NOTHING at all to say in the realm of science. People forget this because they have come to think that political blather, talk show, and scientific debate is essentially the same thing. This is partially the fault of economists themselves who for the greater part lack a proper understanding of what science is all about.

Economic discussions suffer from the fact that both microfoundations and macrofoundations are provably false. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are materially/formally inconsistent and mutually contradictory. This is why all economic discussions end in the bottomless swamp of cross-talk, interpretation, exegesis, second-guessing, and “what x REALLY meant” but for some mysterious reason could not clearly express.

To get out of the proto-scientific swamp requires a Paradigm Shift, i.e. the move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#1

From the true macrofoundations follows the macroeconomic Law of Supply and Demand as shown on Wikimedia.#2 It says:

(i) An increase of the expenditure ratio rhoE≡C/Yw leads to a higher market clearing price (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 indicates deficit-spending/dissaving/credit-expansion, a ratio rhoE less than 1 indicates saving/credit-contraction. Dissaving/saving, in turn, affects the average amount of transaction money M.

(ii) Deficit spending, i.e. the move from rhoE=1 to rhoE greater than 1 causes a one-off price hike but NOT inflation if the deficit spending is exactly repeated period after period.#3, #4, #5, #6 A rising public debt is compatible with price stability.

(iii) An increase in the ratio of wage rate to productivity W/R leads to a higher market clearing price P. If this is repeated period after period one gets inflation depending on the rates of change of W and R in each successive period.

Roughly speaking, the macroeconomic Law of Supply and Demand explains the price level in the elementary production-consumption economy and its development over time. The equation contains but measurable variables and is therefore testable in principle.

See part 2

AXEC / E.K-H said...

Part 2

The relationship between the average amount of fiat money M and the expenditure ratio rhoE, the wage rate W, and employment L is shown on Wikimedia.#7

Because M is the dependent variable it does NOT cause inflation. This puts the commonplace Quantity Theory to rest.

Conclusion: The MMT policy of deficit-spending/money-creation causes a one-off price hike but NOT inflation. The lethal effect of MMT policy is on distribution.#8, #9, #10 The Weimar/Zimbabwe/Inflation shouters suffer from incurable idiocy and cannot be admitted to a serious economic discussion. Fact is that MMT policy does NOT produce inflation but the Oligarchy’s financial wealth (currently about $22 trillion). This public debt is the own handiwork of nobody else than the US Congress.

Egmont Kakarot-Handtke

#1 This is the correct core of macroeconomic premises: (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. (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.
For a start X=O, i.e. market clearing holds. The ratio rhoE≡C/Yw is called expenditure ratio; rhoE=1 indicates budget balancing of the household sector.

#2 Wikimedia AXEC101 Law of Supply and Demand, elementary production-consumption economy{{int:filedesc}}

#3 MMT was right all along: Gov-Deficits do NOT cause inflation

#4 How some MMTers got inflation wrong

#5 MMT and the inflation-red-herring

#6 Economics as tireless production of proto-scientific toilet paper: inflation theory as an example

#7 Wikimedia AXEC111, Structural-systemic Quantity-of-Money formula

#8 Deficits matter for distribution

#9 MMT: Distribution is the drawback NOT Inflation

#10 Dear idiots, government deficits do NOT cause inflation

Ralph Musgrave said...

Perhaps Republican senators could re-examine the amazingly sophisticated Republican economic theory, which goes like this.

When Dems are in power, spend 24/7 in a permanent tantrum about the evils of deficits. Then when Republicans gain power, run even bigger deficits...:-)