I have been catching up after travelling to the Modern Monetary Theory (MMT) Conference in Stony Brook, and see that there was a full issue on MMT in the Real-World Economic Review. Since I referred to the relationship between MMT and Post-Keynesian Economics in my talk, I might as well update my comments based on that RWER issue....I agree with Brian. Tempest in a teapot with the world falling apart around us. People taking themselves too seriously, but that is the story in most of academia. MMT is "winning" because it cuts to the chase instead of wandering in the weeds. People wanting change are provided with direct answers in terms they can understand and relate too. Nor do MMT economists shy from debate about the weeds if it is seriously informed.
And as Scott Fullwiler observed recently on Twitter, the critics still have not deal with the fundamental issue regarding a universal job guarantee, for example. That is, the choice is between a universal job guarantee and some involuntary unemployment being created regardless of what other welfare programs are instituted if a universal job guarantee is not provided, too. There is no alternative short of abolishing wage labor, that is, abolishing capitalism for some form of socialism without wage labor.
Bond Economics
The State Of MMT?
Brian Romanchuk
Comment over there:
ReplyDelete“Well stated, and note the absence of references to or criticism of anything I've written by authors who, for the last 25 years, have witnessed first hand that MMT is and for the most part continues to be entirely my creation... ;). “
Constructive criticism is provided here all the time...,
The state of MMT? Stone-dead!
ReplyDeleteComment on Brian Romanchuk/Tom Hickey on ‘The State Of MMT?’*
Tom Hickey maintains: “MMT is ‘winning’ because it cuts to the chase instead of wandering in the weeds. People wanting change are provided with direct answers in terms they can understand and relate too. Nor do MMT economists shy from debate about the weeds if it is seriously informed.”
Brian Romanchuk maintains: “The relationship between MMT and Post-Keynesian thinking is currently the largest area of awkwardness I see with respect to MMT. The special issue of the RWER seems to provide evidence for that assessment.”
The scientific fact of the matter is that Post-Keynesianism is proto-scientific garbage#1 and MMT is proto-scientific garbage.#2 The relationship between the two is NOT AT ALL awkward, though, because both approaches share the same foundational blunder. Together with Keynes’ faulty approach, both end up in the same wastebasket.#3
The blunder that bring macroeconomics in general and Post-Keynesianism and MMT in particular, down is to be found in Randall Wray’s contribution Alternative paths to modern money theory, section The theoretical path to MMT.*
Here it is: “Government spending, like private investment, is an injection that raises income. More specifically, as Kalecki showed, government spending creates profits because it is a source of business revenue but not a cost of production. Taxes are a leakage, reducing household net income and business net revenue. If government spends more than it taxes, this is a net spending surplus ― increasing profits dollar-for-dollar. A net spending surplus by government cannot ‘crowd-out’ private investment ― it creates profits that are likely to boost the desire to invest. A net spending surplus by the US government cannot absorb global savings ― instead it creates net income for the US private domestic sector as well as for the rest of the world.” and “Now, it is true that government spending is not the only injection. Private investment and exports (or, net exports) also create income that can be leaked. Wynne Godley’s sectoral balance approach ― long incorporated within MMT ― shows that the sum of the balances of the government, domestic private, and foreign sectors is identically zero.”
Accordingly, MMT boils formally down to the sectoral balances equation (I−S)+(G−T)+(X−M)=0. This equation is provably false.#4, #5 The mistake lies in the sentence: “Government spending … is an injection that raises income.” No! Government spending … is an injection that raises profit. And profit is a balance, i.e. the difference of flows, and NOT a flow like wage income. So, profit is NOT income.
In the elementary case, the monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q+S=0, that is, the balances of the household and business sector ad up to zero. Only when profit is distributed it becomes income Yd of the household sector. So total income is wage income Yw plus distributed profit Yd and NOT wages Yw plus profits Q. The difference between profit Q and distributed profit Yd is retained profit Qre.
Neither profit Q, the balance of the business sector, nor distributed profit Yd appear in the MMT sectoral balances equation. Because it lacks the balance of the business sector the MMT balances equation is false.#6 By consequence the whole analytical superstructure of MMT is false. By the ultimate consequence, MMT policy guidance is false.
“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)
So, all one needs to know about MMT is: MMT is NOT the true theory. Scientifically, it is stone-dead.
Egmont Kakarot-Handtke
References
https://axecorg.blogspot.com/2019/10/the-state-of-mmt-stone-dead.html
Cross-posting
ReplyDeleteBrian Romanchuk
You say: “Given that one of the defining characteristics of the scientific method is that theories need to be convincing to other people, said isolated individual(s) are operating outside scientific practice.”
NO! To convince “other people” is the goal of political agenda pushing. Science is about true/false and nothing else: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
The fact of the matter is that the MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is provably false.#1 Randall Wray argues: “Government spending … is an injection that raises income. More specifically, as Kalecki showed, government spending creates profits because it is a source of business revenue but not a cost of production.” However, profit ― the balance of the business sector and the pivotal magnitude of economics ― does NOT appear in the MMT balances equation.
Either MMTers are too stupid for the elementary math that underlies macroeconomics or they are intentionally hiding macroeconomic profit. It is the latter as I have shown elsewhere.
In his post, MMT: REPORT FROM THE FRONT Randall Wray reports “Fifth front: the blogs. I was skeptical of their usefulness ― but Bill and Stephanie recognized that they were the future. They were right. You’re reading this one, created by Stephanie and then taken over by Bill Black. Blogs spread MMT outside academia and official policy circles. And then came videos and tweets. There are tens of thousands of followers now. This helped to foam the runways to the seats of power. No one can afford to ignore MMT any longer. The viral movement, as well as a few fearless candidates ― Bernie and AOC ― brought MMT out of the shadows.”#2
“Tens of thousands of followers” is a respectable propaganda success. So, the money of Wall Street funders was well-spent. This, however, does not change the fact that MMT is proto-scientific garbage. Science is NOT about “convincing other people”, i.e. brainwashing imbeciles.
The macroeconomic Profit Law says Public Deficit = Private Profit. So MMT deficit-spending/money-creation is for the benefit of the Oligarchy and NOT of WeThePeople. Scientifically MMT is crap and politically it is a fraud.
Egmont Kakarot-Handtke
#1 The axiomatically correct sectoral balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
#2 New Economic Perspectives
http://neweconomicperspectives.org/2019/10/mmt-report-from-the-front.html?