The text Macroeconomics by William Mitchell, L. Randall Wray, and Martin Watts is now available as a pre-order for the paperback edition (the ebook edition may already be available; I have not had time to validate). As anyone who has been paying any attention for the past few weeks, Modern Monetary Theory (MMT) has been the subject of controversy. Although I am certainly biased, roughly 99% of the recent high profile attacks are just attacking straw men; one needs to actually read some of the actual theory to critique it. Although there are tons of free primers and so forth on the internet, for many people, their time is worth more than the cost of the textbook. It is my understanding that this textbook will be advanced enough to cover the topics that are beyond the internet primers, and it will provide references to the literature if one wants to purse the primary literature.
I will write a text that may be labelled a "review," but it will really only be an initial overview of the parameters of the book: what is discussed, reading level, etc. Since I am no longer an inmate of an academic institution, I am not really concerned about what is the primary intended use of this book: as a textbook for undergraduates/graduates. Rather, my intended audience is someone like myself: we did our time in academia, learned how to learn, and then want to know what to learn. My real "review" for this book will show up in later articles: am I citing passages from the text, using references, etc.? I will not be able to give an honest answer to that question for at least a year.
For a competent fixed income practitioner, the material that catches attention in internet primers is interesting, but ultimately not too controversial from a theoretical point of view. Only the dumbkopfs expected Japan to melt down because the debt-to-GDP ratio was "unsustainable." (The primers offered a clean story -- which is extremely useful -- but the punchline itself was not a surprise; we practitioners had to get an intuitive feel based on experience.) The interesting bits -- like views on inflation formation -- were quite often outside those primers. From what I have seen of the textbook, it is hitting those areas of interest.
Even when I was in academia, I argued that the best way to get a handle on a field is to first get a textbook, monograph, or possibly a doctoral thesis. Although the primary literature is in the form of articles, one cannot tell the forest from the trees if one does not know what a forest is. If one already has a grasp of economics, it would probably not be necessary to read the textbook from cover-to-cover. However, one can go into the relevant chapters, get the background, and then use the provided citations to get a handle on what you are looking at in the academic journals.
Since I do not think that I will write a traditional review, I did not attempt to get a review copy. So I will only start writing about the book once I get my dirty paws on it.
MMT "Macroeconomics" text on Amazon (affiliate link).
(c) Brian Romanchuk 2019
Refuting MMT’s new Macroeconomics Textbook
ReplyDeleteComment on Brian Romanchuk on ‘Big MMT Textbook Incoming’*
MMT is, of course, accurate as far as the refutation of Orthodoxy/Neoclassics is concerned. Standard economics is scientifically indefensible. There is no need for further discussions about the current state of economics. This is where we stand today: provably false
• profit theory, for 200+ years,
• microfoundations, for 140+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.
However, the critique of Orthodoxy has run its course: “… 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)
MMT claims to be the new theory that beats Orthodoxy. This is accurate with regard to the shift from microfoundations to macrofoundations. Microfounded approaches are dead already since Walras/Jevons/Menger. The problem is that economists in their incurable scientific incompetence messed up the indispensable paradigm shift from microfoundations to macrofoundations.
MMT is NO exception. And the proof is in the new MMT Textbook, more specifically in the premises of MMT. It holds what Keynes observed with regard to Orthodoxy: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.”
The premises of MMT Macroeconomics are laid out on pp. 13-16 and pp. 83-86.
“By placing government, as the currency issuer, at the centre of the monetary system, the MMT approach immediately focuses on how a government spends, and how this spending influences … macroeconomic aggregates …” (p. 13)
This is methodologically false. Macroeconomics starts with what Keynes called the ‘monetary theory of production’. The most elementary economy consists of the household sector, the business sector, and the central bank. Government and foreign trade are included at a later stage. For the central bank holds that it “can never run out of its own currency.”
“One of the most basic propositions in macroeconomics that MMT emphasizes is is the notion that at the aggregate level, total spending equals total income and total output.” (p. 14)
Unfortunately, the most basic proposition in macroeconomics is false since Keynes, and MMTers have not realized it until this day.
Here is the short proof that economists in general and MMTers, in particular, get the elementary mathematics that underlies macroeconomics wrong.
(i) The elementary production-consumption economy is given by three macroeconomic axioms: (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.
(ii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.
(iii) The monetary profit of the business sector is defined as Q≡C−Yw,
(iv) The monetary saving of the household sector is defined as S≡Yw−C.
(v) Ergo Q+S=0 or Q=−S.
The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving (-S) is business sector profit Q. Both Q and S are measurable with the precision of two decimal places.
See part 2
Part 2
ReplyDeleteFor the elementary investment economy holds Q=I−S.
For the elementary investment economy plus government holds Q=(I−S)+(G−T). If I and S are taken out of the picture for a moment, one gets Public Deficit = Private Profit.
In sum: (1) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (2) distributed profit Yd is income and adds up with wage income Yw to total income, (3) total income is NEVER equal to total spending, (4) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (5) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, i.e Q=−S, (6) saving and investment are causally INDEPENDENT and NEVER equal, (7) all I=S/IS-LM models are false since Keynes/Hicks, (8) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (9) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (10) because profit is false, the whole of MMT is false, (11) because the theory is false, MMT policy guidance has no sound scientific foundations.#1
MMT theory is provably false, MMT policy serves the Oligarchy. Since Samuelson started the textbook industry in 1948, economists have produced NOT ONE textbook that satisfies scientific standards.#2 Since generations, economics students swallow proto-scientific garbage without batting an eyelid. Not very smart, these folks.#3
Egmont Kakarot-Handtke
* Macroeconomics
https://www.macmillanihe.com/companion/Mitchell-Macroeconomics/
#1 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html
#2 The father of modern economics and his imbecile kids
http://axecorg.blogspot.com/2016/11/the-father-of-modern-economics-and-his.html
#3 There is NO such thing as “smart, honest, honorable economists”
https://axecorg.blogspot.com/2019/01/there-is-no-such-thing-as-smart-honest.html
You’re like the Energizer Bunny: still going!
DeleteHave you managed to convince anyone that your definition, oops, “axiom,” [sic.] of profits is correct?
Brian Romanchuk
DeleteYou ask: “Have you managed to convince anyone that your definition, oops, “axiom,” [sic.] of profits is correct?”
The ‘axiom of profits’ exists only in your confused mind.
The macroeconomic AXIOMS are enumerated above under (i). The profit DEFINITION is given under (iii). There is a difference between axiom and definition.#1
There is also a difference between ‘to refute’ and to ‘to convince’. Bill Mitchell and you are REFUTED and whether you are convinced of it is a matter of indifference. Nobody has any ambition to convince methodologically undereducated Flat-Earthers.#2 Refutation is sufficient.
Egmont Kakarot-Handtke
#1 From false micro to true macro: the new economic paradigm
http://axecorg.blogspot.com/2016/11/from-false-micro-to-true-macro-new.html
#2 Post Keynesianism, science, and universal idiocy
https://axecorg.blogspot.com/2016/08/post-keynesianism-science-and-universal.html
So, you have no links to *anyone* who agrees with you? These paradigm shifts are pretty darn slow, eh?
DeleteBrian Romanchuk
DeleteYou ask: “So, you have no links to *anyone* who agrees with you? These paradigm shifts are pretty darn slow, eh?”
The point at issue is: “One of the most basic propositions in macroeconomics that MMT emphasizes is is the notion that at the aggregate level, total spending equals total income and total output.” (Mitchell et al., p. 14)
This “most basic proposition” is provably false.#1 Because of this, the whole analytical superstructure is false. Because of this, MMT is proto-scientific garbage. Because of this, MMT policy has NO sound scientific foundations. Because of this, MMT is a political fraud.
The ‘most basic propositions’ are called axioms in methodology: “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)#2
As Aristotle put it: “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.”
This was 2400+ years ago, however, economists in general and you, in particular, still don’t get it. Indeed, pretty darn slow, these economists.
The point at issue is that MMT is proto-scientific garbage and that MMTers are either stupid or corrupt or both. The new MMT Macroeconomics Textbook is the incontrovertible proof.
It holds as a general rule: The time it takes economists to realize that they are refuted on all counts is a simple metric of their scientific incompetence.#3
Egmont Kakarot-Handtke
#1 Macroeconomics for retarded economists
https://axecorg.blogspot.com/2018/01/macro-for-retarded-economists.html
#2 How to restart economics
https://axecorg.blogspot.com/2016/01/how-to-restart-economics.html
#3 The clock runs down on economics
https://axecorg.blogspot.com/2019/03/the-clock-runs-down-on-economics.html
Whatever. You do realise that if you cannot convince anyone, your ideas will likely disappear, and your revolution in thought will come to nothing? The amount of text that is dumped into the internet each year is so vast that anything that is not current will effectively disappear from searches by future scholars within 5 years or so.
DeleteThink of this as a marketing execise. If after a few years of trying, you still get zero sales, perhaps a brand re-boot is in order. Just a suggestion.