Economics, Macroeconomics

MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited

Imagine you are an experienced mechanic. One day your neighbour comes home with a newly purchased used car. It is running terribly – sputtering and running slowly with little power.

You look under the hood. It is a four cylinder car in good condition, and you notice that one of the spark plug cables is simply unconnected. The only thing that needs to be done to make the car run smoothly and with 100% power is to connect that spark plug so that all four cylinders fire.

This is the case with economics and the economy. There are a minority of economists, MMT and Post-Keynesian economists especially, who actually observe the real properties and understand the fundamentals of how the economy functions (as opposed to the scholastic mainstream economics founded on make-believe assumptions).

These economists are sometimes accused of being “normative” and reply that they are merely describing how economies actually function. Unproductive debate follows.

The misunderstanding is that sometimes describing is inevitably prescriptive, as with the car.

Once the actual mechanics of the economy are understand it is impossible to look at the way the economy is currently managed and not suggest increasing spending for public projects such as infrastructure, healthcare, and employment. There are idle resources alongside desired projects; there is no downside to employing them, and almost innumerable upsides.

Just as with the mechanic, there is no way to look at an otherwise well-running four cylinder car that is running needlessly on 3 cylinders and not mention “Errr,,,you know…it would run amazing if you simply connect that cable back, which I can do for free in 10 seconds.” (Which actually improves the functioning by far more than 25% since a non-functioning cylinder messes up the entire timing/function of the engine, it doesn’t just reduce the power proportionately).

Another way to say this: In this case there is in effect a “free lunch”. There is almost no effort involved in plugging the fourth cylinder in, but a massive gain that is currently being foregone for no reason. A similar way to say the same and actually talking about lunch: If someone left a very nice picnic spread on a hot summer day, and you salvage it before it rots, you do indeed have a free lunch, a lunch that would not have existed except for your (minimal) actions. It would have been permanently lost and you would have had to eat something else, but by simply not letting it go to waste you have a free lunch. We are letting a good bit of our economy “rot” for no reason. This is a permanent reduction of wellbeing for us and future generations.

MMT is hardly being “prescriptive” or “normative” when they point out the loose spark plug cables of our economy. There are gains to wellbeing that are relatively easily achievable now that have virtually no downsides.

MMT economists aren’t saying “you should convert that street car, put some big knobby tires on it, and start doing off road derbies!” That would be a normative change in lifestyle and design with many trade offs for wellbeing. But simply plugging the fourth spark plug cable is a pure gain.

This analogy can be extended to think about some recent criticisms of MMT and developing countries. MMT insights help any economy run optimally. What they cannot do is make the fundamentals of a country better. In other words, there can be old Ford Pintos, 4×4 Jeeps, and Ferraris all with loose spark plug cables. All of them have a pure benefit from having those cables noticed and reconnected. However, the cars themselves have fundamental differences in capabilities. It is silly to expect the advice to make the Ford Pinto run like the Ferrari. But both will run much better than they did previously.

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5 thoughts on “MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited

  1. MMT: A free lunch for the Oligarchy
    Comment on Clint Ballinger on ‘MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited’

    As every good snake oil seller, Clint Ballinger first takes people away in a dream world: “Imagine you are an experienced mechanic. One day your neighbour comes home with a newly purchased used car. It is running terribly – sputtering and running slowly with little power. You look under the hood. It is a four cylinder car in good condition, and you notice that one of the spark plug cables is simply unconnected. The only thing that needs to be done to make the car run smoothly and with 100% power is to connect that spark plug so that all four cylinders fire. This is the case with economics and the economy. There are a minority of economists, MMT and Post-Keynesian economists especially, who actually observe the real properties and understand the fundamentals of how the economy functions …”

    The fact of the matter is, though, that neither MMTers nor Post-Keynesians understand how the economy works. Both approaches do not satisfy the scientific criteria of material and formal consistency. In other words, MMT is provably false. MMTers are NOT like the experienced mechanic, they are simply too stupid for the elementary mathematics that underlies macroeconomics.#1

    As a result, MMT policy has NO sound scientific foundations. MMTers are quite ordinary snake oil sellers.#2

    Technically speaking, MMT is based on this sectoral balances equation (X−M)+(G−T)+(I−S)=0 and this equation is mathematically false. The correct balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0 and from it follows that Public Deficit = Private Profit. In other words, the MMT policy of deficit-spending/money-creation boils down to money-making for the Oligarchy. The free lunch Clint Ballinger promises is indeed a free lunch but NOT for WeThePeople but for WeTheOligarchy.#3

    For WeThePeople, the essential points to know about MMT are:
    • MMT has NO sound scientific foundations,
    • MMT’s foundational sectoral balances equation is mathematically false,
    • MMTers do NOT know how the monetary economy works,
    • MMT is political agenda pushing in a scientific bluff package,
    • MMT policy is NOT for the benefit of WeThePeople,#4
    • MMT is just another political fraud,
    • The storyteller Clint Ballinger is a pushy member of the MMT snake oil sales team.#5, #6, #7, #8

    Egmont Kakarot-Handtke

    #1 For the full-spectrum refutation of MMT see cross-references MMT
    http://axecorg.blogspot.de/2017/07/mmt-cross-references.html

    #2 MMT, Warren Mosler, and the little helpers from Wall Street and Academia
    https://axecorg.blogspot.com/2018/10/mmt-warren-mosler-and-little-helpers.html

    #3 Why the MMT benefactors of humanity never talk about profit
    https://axecorg.blogspot.com/2018/09/why-mmt-benefactors-of-humanity-never.html

    #4 MMT is ALWAYS a bad deal for the 99-percenters
    http://axecorg.blogspot.com/2017/12/mmt-is-always-bad-deal-for-ninety-nine.html

    #5 The Kelton-Fraud
    https://axecorg.blogspot.com/2018/07/the-kelton-fraud.html

    #6 MMT: The one deadly error/fraud of Warren Mosler
    https://axecorg.blogspot.de/2017/11/mmt-one-deadly-errorfraud-of-warren.html

    #7 Richard Murphy: the MMT fraudster dressed up as realist
    https://axecorg.blogspot.com/2018/06/richard-murphy-mmt-fraudster-dressed-up.html

    #8 MMT: academic snake oil for the people
    https://axecorg.blogspot.com/2018/02/mmt-academic-snake-oil-for-people.html

    Like

  2. Jerry Brown says:

    “The misunderstanding is that sometimes describing is inevitably prescriptive, as with the car.” Very nice and a great analogy! Thanks. And I agree that debating whether something is descriptive or prescriptive is really unproductive.

    Liked by 1 person

  3. How MMT makes everybody happy
    Comment on Clint Ballinger on ‘MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited’

    Clint Ballinger explains how MMT works: “Just as with the mechanic, there is no way to look at an otherwise well-running four cylinder car that is running needlessly on 3 cylinders and not mention “Errr,,,you know…it would run amazing if you simply connect that cable back, which I can do for free in 10 seconds.” … Another way to say this: In this case there is in effect a “free lunch”. There is almost no effort involved in plugging the fourth cylinder in, but a massive gain that is currently being foregone for no reason.”

    The key words are “almost for free”. People like to get things “almost for free”. Fraudsters know this, and since the ancient gold makers, they promise ‘something for nothing.’ MMTers are no exception.

    Let’s see how it works.

    The elementary production-consumption economy is for a start defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (profit/loss Q≡C−Yw, saving/dissaving S≡Yw−C). Legend: Yw wage income, W wage rate, L employment, O output, R productivity, C consumption expenditures, P price, X quantity bought/sold.

    It always holds Q+S=0 or Q=−S, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and, vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.

    Given the two conditions, the market clearing price is derived for a start as P = W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.

    Unfortunately, the elementary production-consumption economy is in the state of unemployment and nobody has any idea of how to fix the problem.

    Now, the smart MMTer Clint Ballinger talks to the unemployed: “My park has been devastated, I offer each of you the current wage W if you clean up the mess. Your work is appreciated as a valuable contribution to environmental protection.”

    The hitherto unemployed happily agree and start to work while Clint Ballinger vanishes in the basement of his house and prints the extra wage sum Ywu. The money is indistinguishable from central bank money.

    The income of the household sector increases to Yw+Ywu. If the households fully spend their income, consumption expenditures increase and the price goes up a little (NO inflation). The household sector as a whole gets the SAME total real output O under the conditions of market clearing. The hitherto unemployed now get a share of the output of the business sector. Correspondingly, the hitherto employed get less in real terms. Their real wage falls unnoticeable.

    The profit of the business sector increases because Q1=C1−Yw is greater than Q=C−Yw=0 because C1 is greater than C. The situation of the business sector improves. It holds: the business sector’s profit is equal to Clint Ballinger’s counterfeit money creation Ywu.

    That’s a real win-win solution, isn’t it? Clint Ballinger gets his park tidied up for free, the unemployed are productively employed, and the business sector’s profit increases.#1, #2 The question is: Who holds the bag? Could it be WeThePeople?

    Egmont Kakarot-Handtke

    #1 MMT: Money-making for the one-percenters
    https://axecorg.blogspot.com/2017/09/mmt-money-making-for-one-percenters.html

    #2 MMT, money printing, stealth taxation, and redistribution
    https://axecorg.blogspot.com/2017/11/mmt-money-printing-stealth-taxation-and.html

    Like

  4. EKH – the REAL snake oil salesman! One who claims superior mathematical insight, yet cannot/will-not see that his entire proposal is built on an INCORRECT interpretation of the identity principle!

    Like

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