August 4, 2017

MMT and some economic essentials

Comment on Peter Cooper on ‘Short & Simple 13 ― Private Credit Creation’

Blog-Reference

Peter Cooper argues: “The key for now is just to understand that our capacity to make purchases comes from two original sources ― government spending and private credit creation.”

This is absurd. Our capacity to make purchases comes from two sources ― our INCOME and credit creation. These two cases have been dealt with already in ‘Economists: just too stupid for counting’ and ‘Money and time’.

So, there are three cases in a consumption economy without government activity, (i) household sector spending C is equal to wage income Yw, or (ii), spending C is greater than wage income Yw, or (iii), spending C is less than wage income Yw. Case (ii) produces a monetary profit for the business sector.

When government is added with pure deficit spending, e.g. spending G is positive and taxes T are zero, then this case is perfectly identical to private deficit spending (ii), i.e. C+G is greater than wage income Yw. It holds as an unassailable economic law: deficit spending (private or public does not matter) produces monetary profit for the business sector. This is where the buck stops at the end of the period.

The key, for now, is just to understand that MMT is a free-lunch program for the one-percenters.*

Egmont Kakarot-Handtke

* For the comprehensive overview and the point-by-point refutation of MMT see cross-references

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COMMENT on Tom Hickey, André, Ralph Musgrave on Aug 5

Peter Cooper argues: “The key for now is just to understand that our capacity to make purchases comes from two original sources ― government spending and private credit creation.”

In order to discuss this assertion it is imperative to keep focus, that is, to deal with the minimum number of actors. In this case, this is the household sector, the business sector, the banking sector, and the government sector. Everybody understands that these actors are AGGREGATES which have eventually to be DIFFERENTIATED. So, the banking sector consists of the central bank and private banks and near- and quasi- and ‘non’-banks and so on ad infinitum.

Now, the main blunder of incompetent economists consists in the Fallacy of Insufficient Abstraction, that is, the analysis does not remain focused on the small number of ― abstract/aggregated ― actors but regularly gets lost in the woods of IRRELEVANT details.#1
• Tom Hickey reminds us that there is also private non-bank credit.
• André reminds us that not all private bank deposits are created through loans.
• Ralph Musgrave reminds us that private bank deposits is not the same as central bank deposits/notes which is money in the proper sense.
• Tom Hickey reminds us that there is also credit within the business sector, i.e. vendor credit.

Then comes the inevitable grand finale of every economics discussion and the whole issue is drowned in semantics: “’Money’ is one of those weasel words that are ambiguous enough to mean what the user wants to mean.” (Hickey) NO! Money as the generally to be accepted means of transaction is defined by law. The fact that people accept also near-monies as means of transaction does NOT alter the definition of money.

What is the result of the whole confused MMT-crowd blather? Everybody has lost sight of the obvious fact that Peter Coopers’s assertion, “our capacity to make purchases comes from two original sources ― government spending and private credit creation” is false. Get this: Our capacity to make purchases comes from two sources ― our INCOME and credit creation.#2

Egmont Kakarot-Handtke

#1 See parallel thread
#2 For the focused point-by-point refutation of MMT see cross-references