Good logical analysis by Noah Smith
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Seven principles for arguing with economists
by Noah Smith
Principle 4: Argument by accounting identity almost never works.
Example: "But your theory is wrong, because Y = C + I + G!"
Suggested Retort: "If my theory violates an accounting identity, wouldn't people have noticed that before? Wouldn't this fact be common knowledge?"
Reason You're Right: Accounting identities are mostly just definitions. Very rarely do definitions tell us anything useful about the behavior of variables in the real world. The only exception is when you have a very good understanding of the behavior of all but one of the variables in an accounting identity, in which case the accounting identity acts like a budget constraint. But that is a very rare situation indeed.Notice, however, the "almost." This is the theoretical aspect MMT, which uses stock-flow consistent modeling and the sectoral approach developed by Wynne Godley to estimate the size of the government balance necessary to counterbalance the non-government balance.