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How Credible Is MMT? (Modern Monetary Theory)

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Bhangbhangduc said:
It's nice but it doesn't solve the long term endemic issue of the declining rate of profit.
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That is true but it does give us political tools to create programs that increase the structural power of the working class that we can then use to end Capitalism. One of their main proposals, the federal job guarantee would basically end unemployment as we currently know it which takes away one of the main threats employers can hold over their employees heads. So if we are able to win it through a combination of elections and class struggle that would give us a much better wedge against the system.
 


Here is a video from the recent Left Forum about how this all works and what we might want to do with it if anyone is interested.
 
foamy said:
Orthodox economic theory says that the profit in a functional free market will go to zero. That's not actually a bad thing because it means the markets are working.
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Sure but the history of the thing is that over time the rate of profit declines, which leads to lower investment which leads to lower growth which leads to economic crisis. Only with the destruction of the value of previous investments and the write-off of previous debts is the rate of profit restored. This process leads to the rate of profit falling in absolute terms over historical time. There are countervailing forces that can boost it for a time but they are always exhausted and the primary trend reasserts it's self.
 
When has a crisis actually been accurately predicted by the falling rate of profit tho? I can think of examples that were accurately predicted by Volume 2's models, but I can't think of any that were acurately predicted by Volume 3.
 
Aranfan said:
When has a crisis actually been accurately predicted by the falling rate of profit tho? I can think of examples that were accurately predicted by Volume 2's models, but I can't think of any that were acurately predicted by Volume 3.
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I don't want to go too much into this because it's off-topic for this thread but check out The Long Depression by Michael Roberts for a book length explanation of this in regards to the 2008 crash. I think I remember the The Failure of Capitalist Production by Andrew Kliman went into it also.

foamy said:
I am aware that Marxist and other fringe ideologies take peculiar positions on this, thank you.
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Good to know that one of the major economic schools of thought in the world is 'fringe.' Thumbs up. ;)
 
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Cassiemouse said:
I don't want to go too much into this because it's off-topic for this thread but check out The Long Depression by Michael Roberts for a book length explanation of this in regards to the 2008 crash.
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I was under the impression that the 2008 crash was straightfowardly an example of an underconsumption gap that was bridged by debt until suddenly the bill came due then demand collapsed as everyone focused on paying down debt? I may be misrembering Volume 2, but I recall that being thoroughly in that volume's wheelhouse.

But we are far afield of the topic by now, yes.

--

MMT seems to be a decent emperical model.
 
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foamy said:
I am aware that Marxist and other fringe ideologies take peculiar positions on this, thank you.
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Declining profitability over time has negative implications for the economy. It means long-term growth is impossible, it means unemployment is rising over time as per Okun's law, it means there are no sustainable business models, and businesses constantly need to expand or be wiped out. Anyone who's ever talked to anyone who owns a business, for instance, would understand that businesses set a lot by remaining profitable and growing. The idea that this is impossible, that profit rates eventually drop to zero, means that all investments are bad, essentially turning the entire economy into a bubble of massive proportions.

When you say, "this is good because the markets are doing it", you're putting market-focused ideology in place of science. The argument that you advanced here, itself, is not a good one. If you have a better one as to how declining profit is somehow good, please, elucidate me.
 
Bhangbhangduc said:
Declining profitability over time has negative implications for the economy. It means long-term growth is impossible, it means unemployment is rising over time as per Okun's law, it means there are no sustainable business models, and businesses constantly need to expand or be wiped out. Anyone who's ever talked to anyone who owns a business, for instance, would understand that businesses set a lot by remaining profitable and growing. The idea that this is impossible, that profit rates eventually drop to zero, means that all investments are bad, essentially turning the entire economy into a bubble of massive proportions.

When you say, "this is good because the markets are doing it", you're putting market-focused ideology in place of science. The argument that you advanced here, itself, is not a good one. If you have a better one as to how declining profit is somehow good, please, elucidate me.
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As long term growth is provably not impossible, it therefore follows something in your chain of reasoning is incorrect.

In the ideal free market, profit is precisely equal to the costs of obtaining it. If it exceeds that value, it entices further entries into the market and therefore reduces the cost of whatever is in question. If it is under it, some will leave the market, because better opportunities exist elsewhere. As no market is in fact the ideal free market there are various complications in obtaining this, but an overall decline in profitability can be attributed to markets becoming more efficient and effective over time as the tools and knowledge in operating within them improves and becomes more sophisticated.

An ideal market wherein profitability is zero is one with zero wastage, and is hence the most efficient possible means of distribution. It may result in other, undesired consequences, but it is neither economically unsustainable nor intrinsically undesirable, and alterations from that will, by definition, result in inefficiencies. Sometimes this is viewed as necessary from viewpoints other than an economic one, but that's not the level this discussion's operating on, is it?
 
foamy said:
As long term growth is provably not impossible, it therefore follows something in your chain of reasoning is incorrect.

In the ideal free market, profit is precisely equal to the costs of obtaining it. If it exceeds that value, it entices further entries into the market and therefore reduces the cost of whatever is in question. If it is under it, some will leave the market, because better opportunities exist elsewhere. As no market is in fact the ideal free market there are various complications in obtaining this, but an overall decline in profitability can be attributed to markets becoming more efficient and effective over time as the tools and knowledge in operating within them improves and becomes more sophisticated.

An ideal market wherein profitability is zero is one with zero wastage, and is hence the most efficient possible means of distribution. It may result in other, undesired consequences, but it is neither economically unsustainable nor intrinsically undesirable, and alterations from that will, by definition, result in inefficiencies. Sometimes this is viewed as necessary from viewpoints other than an economic one, but that's not the level this discussion's operating on, is it?
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You claim that the tendency of rate of profit to fall has been disproved. To put it simply, it has not been. The principal opposition, the Okishio theorem, was simply not based on the same assumptions as the Marxist theory it was challenging, and the Sraffian school it was built in is not accepted anymore.

And yet somehow these facts are always ignored when people like you are faced with the basic flaws in your theory.

I have no way to respond to someone who thinks that declining profit is good. I'm really sorry, but if you think that a zero profit equilibrium is sustainable and good, ignoring effects I already mentioned like Okun's law, and are calling me an ideologue for, what, acknowledging the existence of knock on effects, then there's no further discussion we can really have.
 
foamy said:
As long term growth is provably not impossible, it therefore follows something in your chain of reasoning is incorrect.

In the ideal free market, profit is precisely equal to the costs of obtaining it. If it exceeds that value, it entices further entries into the market and therefore reduces the cost of whatever is in question. If it is under it, some will leave the market, because better opportunities exist elsewhere. As no market is in fact the ideal free market there are various complications in obtaining this, but an overall decline in profitability can be attributed to markets becoming more efficient and effective over time as the tools and knowledge in operating within them improves and becomes more sophisticated.

An ideal market wherein profitability is zero is one with zero wastage, and is hence the most efficient possible means of distribution. It may result in other, undesired consequences, but it is neither economically unsustainable nor intrinsically undesirable, and alterations from that will, by definition, result in inefficiencies. Sometimes this is viewed as necessary from viewpoints other than an economic one, but that's not the level this discussion's operating on, is it?
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I think the key thing here is that there is a distinction between economic profit and accounting profit. In a perfectly competitive market, in the long run, economic profit is zero. This is not true for accounting profit. Accounting profit only takes into account revenue in and actual costs out. Economic profit takes those things into account plus opportunity costs and a few other things. The thing is, as long as everyone gets paid, having zero economic profit doesn't really have any sort of disincentive for a company to continue operating.
 
Cadis said:
I think the key thing here is that there is a distinction between economic profit and accounting profit. In a perfectly competitive market, in the long run, economic profit is zero. This is not true for accounting profit. Accounting profit only takes into account revenue in and actual costs out. Economic profit takes those things into account plus opportunity costs and a few other things. The thing is, as long as everyone gets paid, having zero economic profit doesn't really have any sort of disincentive for a company to continue operating.
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Rising capital costs over time thanks to increasingly advanced technology will drive rates of profit down, even negative.
 
Bhangbhangduc said:
You claim that the tendency of rate of profit to fall has been disproved. To put it simply, it has not been. The principal opposition, the Okishio theorem, was simply not based on the same assumptions as the Marxist theory it was challenging, and the Sraffian school it was built in is not accepted anymore.

And yet somehow these facts are always ignored when people like you are faced with the basic flaws in your theory.

I have no way to respond to someone who thinks that declining profit is good. I'm really sorry, but if you think that a zero profit equilibrium is sustainable and good, ignoring effects I already mentioned like Okun's law, and are calling me an ideologue for, what, acknowledging the existence of knock on effects, then there's no further discussion we can really have.
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Your post doesn't even manage to be consistent in what you claim I'm arguing. If I'm saying that declining profits are good, would that not necessarily require that I acknowledge that profit is declining? Or at least, given that actually proving it on a large scale is difficult, generously conceding it to you for the purpose of argument?

Even granting you're not reading the words I am writing, the imaginary construct you've assembled to argue against seems to shift between two paragraphs.

Cadis said:
I think the key thing here is that there is a distinction between economic profit and accounting profit. In a perfectly competitive market, in the long run, economic profit is zero. This is not true for accounting profit. Accounting profit only takes into account revenue in and actual costs out. Economic profit takes those things into account plus opportunity costs and a few other things. The thing is, as long as everyone gets paid, having zero economic profit doesn't really have any sort of disincentive for a company to continue operating.
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That is precisely correct. However, if economic profit is declining to zero -- a desirable thing, generally, since an economic profit is in fact a sign of a market failure --, then if all other factors are held constant this would also reflect in a reduction in the accounting profit, which if naively extrapolated would lead one to a false conclusion that accounting profit is also going to go to zero.
 
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Bhangbhangduc said:
Rising capital costs over time thanks to increasingly advanced technology will drive rates of profit down, even negative.
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There's a shitton of technology that has gotten less expensive with time; second, I literally just said that having a zero rate of economic profit is fine.
 
foamy said:
As long term growth is provably not impossible, it therefore follows something in your chain of reasoning is incorrect.

In the ideal free market, profit is precisely equal to the costs of obtaining it. If it exceeds that value, it entices further entries into the market and therefore reduces the cost of whatever is in question. If it is under it, some will leave the market, because better opportunities exist elsewhere. As no market is in fact the ideal free market there are various complications in obtaining this, but an overall decline in profitability can be attributed to markets becoming more efficient and effective over time as the tools and knowledge in operating within them improves and becomes more sophisticated.

An ideal market wherein profitability is zero is one with zero wastage, and is hence the most efficient possible means of distribution. It may result in other, undesired consequences, but it is neither economically unsustainable nor intrinsically undesirable, and alterations from that will, by definition, result in inefficiencies. Sometimes this is viewed as necessary from viewpoints other than an economic one, but that's not the level this discussion's operating on, is it?
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The theorem says that, if and only if, there are no externalities that markets are efficient, if and only if, markets are competitive then they are efficient, if and only if, there is perfect information, if and only if, markets are in equilibrium is the outcome efficient, etc. In all these cases we can see massive externalities to the point that the economy is all about externalizing costs on other people, a trend towards non-competitive structures, and a corporate structure that regularly throws the labor market out of equilibrium by it's very function. This is to say nothing about whether markets are fair or not which they are clearly not. Not to mention that markets only optimize for individual consumption rather than social consumption. We can see that public health care systems are more efficient than private health care systems, for example.

Anyway, to get back on topic. The reason why we worry about the decline in the rate of profit is because the failure rate of businesses increases dramatically the lower the rate of profit is. In fact when the rate of profit falls beneath the interest rate is usually when a business is most vulnerable to this. If the rate of profit declines over time then that means there will come a time when even zero or negative interest rates cannot protect a business from failing. We can see this from the last crisis where interest rates went to zero or even negative and still we limp along in a long depression like we had in 1870s-1890s. Which means there is a finite amount of growth that Capitalism is able to produce. This doesn't mean Capitalism will just implode, just that it will become more and more stagnant over time. I really need to read my books again to put all the math into this but I am a very amateur economist doing this for my own education so it's hard for me to put together the full arguments.
 
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Cassiemouse said:
The theorem says that, if and only if, there are no externalities that markets are efficient, if and only if, markets are competitive then they are efficient, if and only if, there is perfect information, if and only if, markets are in equilibrium is the outcome efficient, etc. In all these cases we can see massive externalities to the point that the economy is all about externalizing costs on other people, a trend towards non-competitive structures, and a corporate structure that regularly throws the labor market out of equilibrium by it's very function. This is to say nothing about whether markets are fair or not which they are clearly not. Not to mention that markets only optimize for individual consumption rather than social consumption. We can see that public health care systems are more efficient than private health care systems, for example.
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You'll note I was quite careful to pre-emptively include relevant qualifications to all of these.

Anyway, to get back on topic. The reason why we worry about the decline in the rate of profit is because the failure rate of businesses increases dramatically the lower the rate of profit is. In fact when the rate of profit falls beneath the interest rate is usually when a business is most vulnerable to this. If the rate of profit declines over time then that means there will come a time when even zero or negative interest rates cannot protect a business from failing. We can see this from the last crisis where interest rates went to zero or even negative and still we limp along in a long depression like we had in 1870s-1890s. Which means there is a finite amount of growth that Capitalism is able to produce. This doesn't mean Capitalism will just implode, just that it will become more and more stagnant over time. I really need to read my books again to put all the math into this but I am a very amateur economist doing this for my own education so it's hard for me to put together the full arguments.
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Why care if a business fails? Businesses aren't people. They don't need to be protected and they don't have feelings to hurt. To borrow from Rocky, if they die, they die.

As far as 'finite growth', I put it to you this is true of any system whatsoever so long as the laws of thermodynamics hold :p
 
Cassiemouse said:
We can see that public health care systems are more efficient than private health care systems, for example.
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I don't think this is obvious. There are a bunch of things in the US that are 10x more expensive then in the past and in comparable countries without the same public/private split you see in healthcare. It seems quite plausible that a US public health system would continue to be absurdly expensive anyway.
 
foamy said:
Why care if a business fails? Businesses aren't people.
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But they involve people who will be ruined by their failure.

I think it's pretty hubrisious to pretend that, a mere 10 years after the 2008 Crisis, that declining profitability is performed by a steadily better functioning free market. I'd like to see your evidence that suggests the market is actually becoming better functioning.

foamy said:
As far as 'finite growth', I put it to you this is true of any system whatsoever so long as the laws of thermodynamics hold :p
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The point is that Capitalism assumes infinite growth. GDP has to grow every year or the system starts to produce negative outcomes. Only that kind of continual growth is impossible when you're up against a limited earth enviroment.
 
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