100% Proof That Getting a BS From Wharton BS can teach you BS.

Getting a degree from the Wharton Business School is like bringing a beautiful, but stale cake to a party. It will get you in the door, and lots of “oohs and aahs,” but later, people will have a bad taste in their mouths.

The Whsrton school has a great reputation, but if the following article is any indication of what they teach there .  .  .  well, I don’t know.

Image result for WHARTON
Great reputation.

Here are a few excerpts to make my point:

Beware the COVID-19 Debt Hangover
Biden’s proposed stimulus spending might give a modest boost, but in the long run it’ll slow the economy.
J.D. TUCCILLE | 2.19.2021 7:00 AM

After the rush, brace yourself for the hangover.

That’s the warning from experts with the University of Pennsylvania’s Wharton Business School, who caution that plans for massive “stimulus” spending by the Biden administration will administer only a brief boost to the country followed by a nasty and prolonged comedown.

Will someone please tell the “experts,” there is no history of federal deficit spending creating a “nasty and prolonged comedown.”

On the contrary, it is a lack of federal spending that causes nasty recessions, and those recessions are cured by increased federal deficit growth.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.


Graph shows annual % growth of Federal Debt held by the public. Every recession (vertical gray bars) is preceded by a decline in debt growth, and is cured by an increase in debt growth.

The White House objects to the forecast, but it squares with earlier predictions from the Congressional Budget Office that accumulated debt, worsened by heavy pandemic-related spending, will hobble the economy for years to come

There is no historical evidence that increased federal debt (red) causes decreased GDP (blue). On the contrary, they rise together, because federal debt adds growth dollars to the economy.

Again, that “hobble the economy for years to come” is a hypothesis that runs counter to actual results.

I get the feeling that someone at Wharton is sitting alone, in a windowless room, with no access to the real world, dreaming up scenarios.

President Joe Biden’s proposed $1.9 trillion relief package would increase economic growth by 0.6 percent in 2021, according to analyses by the Penn Wharton Budget Model (PWBM).

After that, though, it would start to slow the economy, decreasing GDP by 0.2 percent in 2022 and by 0.3 percent as late as 2040, showing lingering negative effects after the initial spending.

“Decreasing GDP,” which never has happened following federal stimulus spending. Where do they get this stuff?

The big problem for the longer-term outlook is “the large amount of additional money that we’re adding to our already very large debt,” according to Efraim Berkovich, PWBM’s director of computational analysis.

“The existence of the debt saps the rest of the economy. When the government is running budget deficits, the money that could have gone to productive investment is redirected.”

There is no mechanism by which adding money to the economy “saps the rest of the economy.”

And what is “the rest” of the economy? Federal deficit spending circulates throughout the economy. Which part of the economy is “the rest,.” that will be sapped?

And consider the statement, “the money that could have gone to productive investment is redirected.” Which money are they talking about?

If the government doesn’t deficit spend, then where does the money come from that could have gone to “productive investment.”

Further, the federal stimulus money is going to workers, consumers, businesses, and schools. What are the more “productive investments” than those?

U.S. government debt is already sky-high, having increased by $7 trillion dollars in the last four years alone to reach 100 percent of GDP at the end of 2020.

That burden threatens to act as a dead weight on economic growth.

Adding money to the economy is “a dead weight on economic growth”??? Huh? Is that what they teach at Wharton?

The formula for economic growth is Gross Domestic Product = Federal Spending + Non-federal Spending + Net Exports.

Do the algebra. How do increases in Federal Spending reduce Gross Domestic Product growth? Is the formula wrong or is Wharton BS simply spreading BS?

This all is a restatement of the “ticking time bomb” fallacy, that by some magical process, adding dollars to the private sector impoverishes the private sector. It’s laughable nonsense.

Finally, the fact that the federal debt (actually the total of deposits into T-security accounts at the Federal Reserve) is 100% of GDP also is 100% meaningless. That ratio is classic apples/oranges comparison.

Federal debt is the total deposits in T-security accounts. GDP is total spending. By what magical thinking does the fact that they are at an equal level, act as a “dead weight”?

Press Secretary Jen Psaki insists the prediction is “way out of step with the majority of studies on this plan.”

In particular, she complains “the analysis concludes that our economy is near capacity, which would be news to the millions of Americans who are out of work or facing reduced hours and reduced paychecks.”

Ms. Psaki is attempting to speak truth to ignorance, something this blog has been laboring to do for more than 20 years. Good luck, Jen.

In response, the Wharton analysts point to ongoing recovery in many sectors. They also point out that continuing lockdowns prevent some production and employment that would otherwise occur.

What does this have to do with the false notion that the federal government is spending too much?

“[R]ecovery in the affected sectors is limited by pandemic-related shutdowns and individual behavior,” they wrote. “There is no mechanism by which additional household spending will stimulate those sectors until pandemic-related restrictions ease.”

They alluded to the mechanism, which is: “Ongoing recovery in many sectors.” When people have money to spend, the businesses that receive that spending do well. Consider all the online and delivery services, for instance. Consider the businesses that have had to lay off employees because their customers aren’t spending.

The vast majority of America’s businesses are open and running, with their biggest problem being that their customers are unemployed and don’t have money to spend.

Look at these statistics supplied by Wharton BS.

Unemployment claims unexpectedly increased last week to 861,000. The official unemployment rate of 6.3 percent remains above its pre-pandemic/pre-lockdown rate of 3.5 percent (just one year ago!). But that’s a steep drop from the April peak of 14.8 percent.

Industrial production, too, at 75.6 percent of capacity in January, remains about 4 percent lower than it was a year ago. But it’s higher than it was just a few years ago and steadily rising.

“At 107.2 percent of its 2012 average, total industrial production in January was 1.8 percent lower than its year-earlier level,” according to a February 17 Federal Reserve update.

So, while the economy isn’t entirely back, it’s moving in the right direction—a process that could be interrupted by massive government spending.

There is no known process by which “massive government spending” (remember the formula for GDP) can “interrupt” economic growth.

So, wait a second! Unemployment is up. Production is 4% lower than last year. How does that square with the claim that “our economy is near capacity” and simultaneously growing?

And now comes the real ignorance:

“[E]ffectively, what we’re doing is taking money from [some] people and giving it to other people for consumption purposes,” notes Berkovich of stimulus schemes.

“That has value for social safety nets and redistributive benefits, but longer-term, you’re taking away from the capital that we need to grow our economy in the future.”

Clearly, Wharton BS school does not understand the differences between Monetary Sovereignty and monetary non-sovereignty. They actually believe that federal taxes fund federal spending. OMG!

[Note to Wharton professors: Federal taxes, unlike state/local taxes, are destroyed upon receipt. The federal government has no use for tax dollars. It creates new dollars each time it pays a creditor. That is a fundamental of Monetary Sovereignty. It is the reason why no one can answer the question, “How much money does the federal government have?”]

While state and local (monetarily non-sovereign) taxes do fund state and local spending, federal spending is funded by ad hoc money creation. While state and local governments can and do run short of dollars, the federal government never does.

The federal government has spent trillions of additional stimulus dollars in just the past year, yet taxes have not been raised. How is that possible? Answer: The federal government does not spend tax dollars.

Stimulus spending also has the potential to delay the inevitable shakeout as businesses and workers scramble to adapt to a changing environment.

Both the McKinsey Global Institute and the Bureau of Labor Statistics recently published studies predicting that remote work is here to stay for many people.

What is the “shakeout” that Wharton BS does not want delayed? Bankruptcies? Impoverishment? Recession and depression? And if remote work is here to stay, why is this a bad thing, especially if people receive money from the federal government?

“In the moderate impact scenario, increased telework is the primary force of economic change and has both direct and spillover effects,” notes the BLS report. “With more employees teleworking, the need for office space will decline, and so will nonresidential construction.”

That’s going to necessitate a lot of adjustment in sectors including restaurants, travel, and commercial real estate; government checks just delay the day of reckoning.

That is like saying we all are going to die, and modern medicine will “just delay the day of reckoning.”

Increased telework is not the result of federal spending. It is the result of technology. It will have bad effects (for instance, the aforementioned “decline in nonresidential construction”) and it will have good effects (for instance less auto use of fossil fuels and pollution).

That is already a problem in Europe, where economists and business owners worry that subsidies prop up “zombie” companies that would otherwise disappear and clear the way for healthier enterprises.

Get the double-talk? “Already a problem — because economists and business owners “worry” about a possible future.

If money is given to consumers, how does this “prop up zombie businesses that prevent “healthier” enterprises from existing? What are these “zombie” companies that are benefiting from federal deficit spending, and what are these “healthier” companies that are being prevented from doing business?

“These zombie companies…run their business for a couple of months below costs,” Alexander Alban, managing partner at German mechanical parts manufacturer Walter Schimmel GmbH told the Wall Street Journal.

“They ruin the market. Afterwards, it’s very hard to get this business back. Usually it’s good if the market is cleaned.”

Apparently, Alban is talking about every new company that originally runs at a loss, until it succeeds or fails — like Amazon, ESPN, Tesla, Square, FedEx, Turner Broadcasting, et al. In short, Alban is complaining about how startups normally are built.

The result is a poorer and less-productive economy than would have existed in the absence of government spending sprees. That’s in addition to the depressing effects of deficits and debt.

In analyses predating the latest stimulus proposals, the Congressional Budget Office (CBO) voiced concerns similar to those of the Wharton Business School about debt-fueled spending.

Get it? When the government pumps money into the economy, as it has been doing for 80 years, that magically has made the economy poorer and less productive. Except that is exactly the opposite of what has happened in the real world.

You see, despite everything you know, GDP has gone down, because uh, well, uh, GDP = Federal and Non-federal spending + Net Exports. So pay no attention to 6th-grade algebra.

And of course, the dependably wrong CBO agrees.

“CBO estimates that the legislation will boost the level of real (inflation-adjusted) gross domestic product (GDP) by 4.7 percent in 2020 and 3.1 percent in 2021,” according to a September 2020 report forecasting the impact of pandemic-related federal spending.

“From fiscal year 2020 through 2023, for every dollar that it adds to the deficit, the legislation is projected to increase GDP by about 58 cents.

That’s the straight line for the joke. Now here comes the punch line:

In the longer term, the legislation will reduce the level of real GDP, CBO estimates.”

That is, the CBO predicted two years of benefit, followed by each dollar spent producing far less than its value in return. The ultimate result is a smaller economy than would have existed without the addition of trillions to the national debt.

And what is the mechanism for this “smaller economy” that has more real money than a bigger economy? By what strange alchemy does adding dollars to the economy reduce real economic growth.

And what is the evidence that this alchemy exists anywhere but in the fevered dreams of the Penn Wharton Budget Model?

“The legislation will increase federal debt as a percentage of GDP, and in the longer term, CBO expects that increase to raise borrowing costs, lower economic output, and reduce the income of U.S. households and businesses,” adds the CBO.

Nice theory, but for two small details:

  1. The meaningless Debt/GDP ratio has been going up for 80 years and what is the result? Borrowing costs are at historic lows, economic output is at historic highs, as is the income of households and businesses.
  2. The Fed has absolute control over interest rates, and by this control has intentionally decided to keep rates low.

But hey, Wharton BS, you have a great reputation, so you don’t really need to let historical fact get in the way of your hypotheses. Just keep spouting nonsense and your followers will nod dumbly and spread the gospel.

You folks remind me of the preacher who tells his flock the world is about to end. So they give away all their belongings and climb to the top of a mountain to away doomsday.

The next morning, when the sun rises as usual, the acolytes, having learned nothing, come down from the mountain, and continue to believe every word of the preacher’s next sermon.

With the House of Representatives poised to consider the stimulus package as early as next week, we may soon have an opportunity to find out just how bad the hangover will be.

If only that would help you “find out” anything. Sadly, history says you will learn nothing. And the great Wharton BS will continue to spout BS.

Hey wait, didn’t Donald Trump attend Wharton? Ah, that explains it.

Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..


The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all or a reverse income tax
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.


11 thoughts on “100% Proof That Getting a BS From Wharton BS can teach you BS.

  1. Okay, so I’m going to defend what Wharton used to be. I received my B.S. in Economics there in 1972, before Monetarism had taken over academic economics and was fortunate to have a real skeptic as my econometrics professor. I learned early on that the mathematical models used by economists were seriously lacking in relevance to the real economy, but they were used by politicians to justify their positions.

    As for understanding why these supposed experts think that more deficit spending will cause a decline in GDP, I recommend you look into the concept of “loanable funds”. It’s basically the idea that at any given time there is a fixed amount of savings that is available to be loaned out by banks for capital investment. If the government is absorbing too much of the available savings into its “borrowing” there will be less available for investment, therefore reducing economic growth.

    In fact, as the MMT academics have shown, that’s exactly backwards. Loans create deposits thereby creating the funds that are used for capital investment. It’s the investment that produces savings as some of the profits from spending on production are saved by the wage-earners and owners.

    You tend to emphasize the federal government’s creation of money in Monetary Sovereignty, but the logic of MS is consistent with the MMT position on bank lending as the source of investment funds.

    In fact, banks create more money from lending than the government creates through its spending. The main difference is that bank created money has to be repaid at some point and government created money does not.

    I would like to start a private email discussion with you if possible. There are a number of items I’d like to discuss that aren’t appropriate as comments on your posts.

    Thank you for continuing to educate your readers on MS.

    Liked by 1 person

  2. You are correct that banks create more money than does the federal government. The differences are in ability and motivation.

    Banks have neither the ability nor the motivation to create more money when the economy is struggling — quite the opposite, really — while the federal government has both the ability and the motivation to fight recessions by creating money.

    The article criticized the federal government for running deficits, but the federal debt scare-mongers don’t criticize banks for loans (except for the bad loans ala pre-2008.)

    That’s the irony. The scare-mongers seem to applaud bank lending (a more dangerous form of money creation), but are terrified about federal money creation, which is absolutely safe.

    Thus, are we ruled by ignorance.

    As of last month, my life has become one of make the bed, do the laundry, take in the cleaning, pickup the cleaning, make social plans, shop for food, cook food, eat food, do dishes, take care of my finances . . . and occasionally write a post on this blog.

    Then go to bed and start over.

    After 64 years of marriage, I never was taught to live alone.

    If you have a comment that is not germane to a specific post, no problem. I’ll put it up, and if I can, I’ll answer it, or perhaps another reader will.

    Got to go now; the dryer is buzzing its message that a load is finished.


    1. My condolences on the loss of your beloved. May her memory be for a blessing.

      One of the best things my mother did for me before I left home for boarding school at 15 was to teach me basic cooking, sewing, ironing and laundry skills. They have come in very handy since I have lived alone for more years than I was married to my three wives altogether, including the past 8 years.

      Banks have the ability to lend as much as they want as long as they have qualified borrowers who are looking to borrow. But, yes, in a struggling economy there won’t be as many borrowers as otherwise, so bank lending will decline. No business owner is going to take on more debt unless they can be confident that their sales will increase to cover the costs.

      One way to look at the difference between government and bank money creation is that bank money is debt-money and government money is not.

      I recommend highly this essay by William Vickery from 1996, Fifteen Fatal Fallacies of Financial Fundamentalism:


      He does make one conceptual mistake in thinking that federal taxes and “borrowing” fund federal spending, but that doesn’t impair his analysis of the fallacies or his explanation of how the underlying economics actually work.

      I think you might find some ideas that would help strengthen your arguments in favor of much higher government deficits, up to full employment.

      Hope you’re staying safe.


      1. Some good stuff in there, but his not understanding that federal taxes don’t fund federal spending, hangs like a dark cloud over most of what he says.

        If someone were to ask me to state the single biggest, least understood truth of economics, I would respond, “Federal taxes are destroyed upon receipt.” It colors everything else.


  3. This statement of fact “Federal debt is the total deposits in T-security accounts” is never touched on during Sunday morning TV shows or any morning, noon or night show for that matter. As soon as the subject of federal debt emerges, the moderator will change the direction of the discussion rather than linger on too long. They never stay on it. I wonder why.


    1. I assume they think it’s obvious that the “debt” is too high and is a burden on taxpayers, so there’s no need to discuss it further.

      Go to a church and see if there are many discussions about whether God is good. It’s obvious to believers, so it needs no discussion.


  4. posted on 21 February 2021

    What Is The Value Of A Wharton Degree?

    by Rodger Malcolm Mitchell, http://www.nofica.com

    100% Proof That Getting a BS From Wharton BS can teach you BS.

    What Is The Value Of A Wharton Degree? (econintersect.com)-

    John B. Lounsbury Ph.D. CFP

    Managing Editor Econintersect.com

    Senior Contributor TheStreet.com

    Highly ranked author Seeking Alpha



  5. Rodger best wishes with your daily tasks and emotions. It’s all so very hard.

    FYI, as you know, the formal reason why PWBM, CBO assume a negative impact from debt longer-term is because of their belief in financial “crowding-out” from the sale of gov. securities. This is false, of course, I have written to the CBO several times and also to the Penn Wharton Budget Model to explain this fact and to kindly ask for their thoughts. The CBO did not respond but Kent Smetters, the head of the PWBM, did respond to me.

    He explained:

    1. “Saving = Investment or

    2. Private Saving plus Public (Gov.). Saving = Investment (an identity).

    He said: “Therefore if Gov. Saving declines (a higher gov. deficit), then Investment must decline unless private saving increases by an equivalent amount.” He finished by saying “That’s all you need to know”.

    I have discovered that among “thoughtful” economists (not ideologues), this identity is the basis for their erroneous thinking. Thus in order to hopefully convince them of their error, it should be useful to address their thinking within their own framework. One can do that by noting that the private saving data consists of both non-financial saving (housing, machines, software, etc) and financial saving.- a key insight they overlook. Thus their identity can be rewritten as:

    3. Private Non-financial Saving plus Private Financial Saving plus Gov. Saving = Investment.

    Now: Private Non-financial Saving = Investment – by definition.

    Thus each can be subtracted respectively from each side of identity 3. leaving us with:

    4. Private Financial Saving plus Gov. Saving = zero

    Then, subtracting Gov. Saving from each side, we get::

    5. Private Financial Saving = Gov. Deficit.

    Thus, private financial saving increases dollar for dollar with increases in the gov. deficit. No crowding out. That is, upon further review, the identity
    actually proves the opposite of their belief!

    The National Income Accounts from the BEA provide the data on financial saving (as distinct from the more widely publicized overall savings rate – the latter includes non-financial saving). Sure enough: the government deficit always precisely equals the total of private sector financial saving over any period.

    I do this just as a proof statement which I also share with them. (Interestingly, I have not seen anyone else, even MMTers, actually present this data on financial saving)

    So I shared this with Mr. Smetters of PWBM. No response. I then followed up with several e-mails to him explaining in other ways why crowding out is not possible. No responses. PWBM is on Twitter. So I tried there. I also even wrote to a couple of their advisors. No responses. So, at the end of the day, the usual complete lack of intellectual integrity. Frustrating. But I will keep after them. I actually have a connection to one of their funders. So I will try him next. They might be forced to listen to him!

    Anyway, thought you might find interesting. Since they don’t “get it” – I think it is useful to explain their errors within their own framework – as well as to share the actual data. .

    Best wishes,




    1. The man simply does not understand the differences between a Monetarily Sovereign government and a monetarily non-sovereign government.

      The notion of “saving” is meaningless for an entity that creates dollars at will and ad hoc, simply by spending. Unlike you and me, the federal government does not spend from income or saving.

      His statement, “. . . if Gov. Saving declines (a higher gov. deficit), then Investment must decline unless private saving increases by an equivalent amount,” omits one important fact: A higher government deficit occurs when the government pumps more dollars into the economy than it removes via taxes.

      Therefore, higher federal deficits CAUSE higher private saving.

      By the way, I’m sure he believes (erroneously) that federal taxes and federal borrowing fund federal spending — just as with a monetarily non-sovereign government..

      Ask him 1 question: “Do your beliefs apply equally to Monetarily Sovereign governments (US, Canada, China, et al) vs monetarily non-sovereign governments (state/local governments, euro governments).

      I doubt he will answer that question, but in the unlikely event he does, please keep me apprised.


  6. Thanks Rodger, Yes, saving is meaningless for the US gov. And federal deficits cause higher private saving. My point was to demonstrate that the latter point can even be demonstrated within his framework – and they still won’t respond. Will, though, try your questions. Let you know if any response.


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